MARC PLACES KNM GROUP BERHAD’S AND KNM CAPITAL SDN BHD’S PROGRAMME RATINGS OF MARC-1ID/A+ID ON MARCWATCH NEGATIVE

MARC PLACES KNM GROUP BERHAD’S AND KNM CAPITAL SDN BHD’S PROGRAMME RATINGS OF MARC-1ID/A+ID ON MARCWATCH NEGATIVE

Apr 25, 2013 -

Today MARC placed its short term and long term debt ratings of MARC-1ID and A+ID ratings on the KNM Group Berhad (KNM Group or KNM) and KNM Capital Sdn Bhd (KNM Capital) on MARCWatch Negative to highlight event risk concerns arising from the winding up petition that was recently served on KNM Group's material subsidiary, KNM Process Systems Sdn Bhd (KNM Process). KNM Process is defined as a material subsidiary within the principal terms and conditions of the rated debt programmes. KNM Capital is a wholly-owned funding vehicle of KNM Group.

The MARCWatch Negative placement affects RM50 million of outstanding notes under KNM Capital's RM300 million Murabahah Underwritten Notes Issuance Facility/Islamic Medium Term Notes (IMTN) Programme as well as two debt programmes belonging to KNM Group. KNM Group has yet to issue any notes under its RM400 million Islamic Commercial Paper Programme and RM1.1 billion IMTN Programme. 

The aforementioned winding up petition by Mission Biofuels Sdn Bhd (Mission) was served over an alleged debt of RM12.2 million together with interest and cost which it is claiming as liquidated ascertained damages for KNM Process' failure to achieve final acceptance of a biodiesel and glycerine plant, under an engineering, procurement, construction and commissioning (EPCC) contract dated July 25, 2007. The petition is fixed for hearing on July 18, 2013. Prior to the petition by Mission, MARC notes that KNM Process had filed suits against Mission for outstanding payments under the EPCC contract. MARC understands that on April 24, 2013, KNM had obtained an interim injunction to restrain Mission from amongst others, proceeding further with the petition until an inter partes hearing on May 9, 2013.

MARC is concerned that the presentation of a petition against KNM Process could trigger an event of default (EOD) under the rated programmes. The principal terms and conditions for issuance under the rated facilities provide for the declaration of an EOD if a petition is presented for the winding up of the issuer and/or KNM and/or any of the material subsidiaries and no action is taken to set aside the petition for winding up within 30 days from the date of service of such petition. A declaration of EOD by the noteholders, will result in acceleration of the outstanding RM50 million under KNM Capital's RM300 million Murabahah Underwritten Notes Issuance Facility/IMTN Programme.

To resolve the MARCWatch Negative placement, MARC will monitor developments with regard to the aforementioned proceedings. As part of the review process, MARC will also examine the mitigating actions that KNM has taken since the rating agency's last rating action in November 2012 to strengthen its overall financial profile, particularly its cash flow and liquidity position. The rating agency had revised its outlook on the ratings to negative in its last review while affirming the ratings. An adverse development on the winding up petition could result in multiple-notch rating downgrades.

Contacts:

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

Se Tho Mun Yi, +603-2082 2263/ munyi@marc.com.my.