MARC AFFIRMS ITS MARC-3ID / BBBID RATINGS ON BOON KOON’S RM100 MILLION ICP/IMTN PROGRAMME

Sep 21, 2012 -

MARC has affirmed its short-term and long-term ratings of MARC-3ID and BBBID on Boon Koon Group Bhd’s (BKBG) RM100 million Islamic Commercial Paper/Islamic Medium Term Notes (ICP/IMTN) Programme with a stable outlook. The rating action affects RM25 million of outstanding notes issued under the programme.

The affirmed ratings reflect the reduced refinancing risk related to BKBG’s upcoming final redemption of all outstanding notes under its ICP/IMTN programme on account of its recently secured RM25 million term loan facility from AmBank (M) Berhad for the purpose of refinancing of the notes. MARC assumes in the stable rating outlook that BKBG’s planned refinancing of outstanding notes under its ICP/IMTN programme will be completed ahead of its December 7, 2012 final redemption date, as outlined by the company; BKBG contemplates completing the refinancing in October 2012.

Based in Nibong Tebal, Penang, BKBG is one of the major players in the domestic rebuilt commercial vehicles segment. Since MARC’s last review in November 2011, BKBG’s operating performance has been under pressure due to weakening demand for rebuilt commercial vehicles. The rating agency notes that while BKBG announced a marginal decline in revenue for the financial year ended March 31, 2012 (FY2012), its profitability was negatively affected by its efforts to clear its slow moving inventory. Excluding the group’s one-off gain of RM4.1 million from its disposal of a 75% equity interest in First Peninsular Credit Sdn Bhd, the group’s pre-tax profit of RM4.3 million (including pre-tax profit from discontinued operation of RM0.4 million) for FY2012 would be reduced to RM0.2 million. The group’s cash flow from operations (CFO) dropped to RM10.0 million from RM31.6 million a year ago due to inventory restocking. The lower CFO generation has also put pressure on the group’s liquidity position.

BKBG’s proposed refinancing of its maturing debt alleviates the near-term uncertainty regarding its ability to fund its debt repayment from the group’s cash flow generation and internal liquidity sources. Holding company level cash balances remained modest at RM3.9 million as at end-March 2012 relative to its RM25 million of debt maturities in December 2012. MARC also takes note of the group’s ongoing efforts to reduce leverage and planned strategic initiatives to improve its business and financial profile which include establishing commercial vehicle assembly operations which are expected to commence in the second half of FY2012, a capital reduction exercise to reduce its accumulated losses and a rights issue in FY2013 to shore up its capital.

MARC will continue to monitor the progress of the refinancing exercise and the placement of the proceeds in the principal service account to retire the notes. The rating agency would re-evaluate the ratings and/or the rating outlook if the refinancing does not occur.

Contact:

Sharidan Salleh, +603-2082 2254/ sharidan@marc.com.my.