MARC PLACES KINSTEEL BERHAD’S ISLAMIC DEBT PROGRAMME RATINGS ON MARCWATCH NEGATIVE

Apr 17, 2013 -

MARC has placed its ratings of MARC-2ID/A-ID and A-ID on Kinsteel Berhad’s (Kinsteel) RM100.0 million Murabahah Commercial Papers/Medium Term Notes Programme (CP/MTN) and RM100.0 million Murabahah Medium Term Notes (MTN) Programme respectively on MARCWatch Negative. The rating action reflects MARC’s concerns on the group’s weak operating performance which would exert pressure on the group’s ability to meet its upcoming financial obligations. Under the debt programmes, RM40.0 million CP/MTN and RM10.0 million MTN are due on August 28, 2013 and September 6, 2013 respectively.

The business and financial risk profiles of the Kinsteel group, which is an integrated domestic steel player, have been affected by the challenging conditions in the steel sector. For unaudited financial year ended December 31, 2012 (FY2012), the Kinsteel group registered consolidated pre-tax loss of RM261.2 million (FY2011: negative RM308.1 million) on revenue of RM2.1 billion (FY2011: RM2.0 billion). The rating agency notes that the weak steel demand, disproportionate decrease in market price of steel products relative to raw materials and high financial charges have continued to weigh on the performance of the group.  Upstream steel manufacturing is undertaken by Kinsteel’s subsidiary Perwaja Steel Sdn Bhd, which has continued to suffer financial losses.

MARC observes that while Kinsteel at the company level registered cash flow from operating activities (CFO) of RM100.4 million in FY2012 (FY2011: negative RM8.4 million), cash and bank balances declined to RM9.6 million (FY2011: RM31.2 million) mainly on account of high finance costs and repayment of borrowings.

MARC is in the midst of completing its annual review on Kinsteel’s ratings, and expects to resolve the MARCWatch placement within the next two to four weeks.

Contacts:

Ngiam Tee Wei, +603-2082 2268/ teewei@marc.com.my;

Taufiq Kamal, +603-2082 2251/ taufiq@marc.com.my;

Rajan Paramesran, +603-2082 2233/ rajan@marc.com.my