MARC AFFIRMS TRINITY CORPORATION BERHAD’S SETTLEMENT BaIDs B-ID RATING; OUTLOOK REVISED TO STABLE

Aug 1, 2013 -

MARC has affirmed its rating on Trinity Corporation Berhad’s (Trinity) outstanding RM92.8 million Settlement Bithaman Ajil Debt Securities (Settlement BaIDs) at B-ID. The outlook is revised to stable from negative. The affirmed rating reflects Trinity’s weak business and financial profile arising from the group’s restricted ability to undertake new development projects and its continued reliance on proceeds from timely asset disposals to meet its sizeable debt obligations. The revised outlook is premised on the reduced cross-default risk on Trinity’s debt obligations following the substantial progress to resolve the outstanding sukuk obligations of its subsidiary Ample Zone Berhad (Ample Zone).

As at end-June 2013, Ample Zone’s disposals of some of the security assets pledged under its sukuk generated net proceeds of RM51.5 million which will be utilised to reduce its outstanding sukuk debt of RM80.3 million; the balance is expected to be met through additional asset disposals of about RM34.0 million. Ample Zone, which had defaulted on its sukuk obligations in January 2012, was granted an extended indulgence period by its sukukholders until March 31, 2014. MARC notes that the progress on Ample Zone’s sukuk obligations has alleviated the cross-default risk at Trinity, in particular the risk of an acceleration of the Settlement BaIDs, the outstanding amount of which stood at RM92.8 million as at end-June 2013.

For financial year ended January 31, 2013 (FY2013), Trinity has early redeemed a smaller amount of RM5.4 million of the Settlement BaIDs as compared to RM36.0 million in the preceding year. Nonetheless, as the maturity of the Settlement BaIDs, which is partially secured against assets worth RM25.2 million, is due only in June 2019, the company has sufficient leeway to address its obligations under the rated issue. MARC observes that the group continues to face limited business prospects on its property development activities, partly due to the absence of a valid Advertising Permit and Developers’ Licence that would enable the property developer to undertake projects on its own accord. Under these circumstances, MARC views any slowdown on Trinity’s asset disposal plans would exert pressure on the company’s already weak liquidity position.

For FY2013, the group’s normalised revenue of RM212.6 million (FY2012: RM637.4 million, inclusive of one-off land disposals) was largely driven by the disposal of development land and progress billings on projects which were undertaken jointly with other developers. Group pre-tax losses narrowed to negative RM14.0 million (FY2012: negative RM124.4 million) due mainly to gains from asset disposals and lower administration expenses. Cash flow from operations (CFO) was lower at RM36.4 million in FY2013 (FY2012: RM119.8 million) in line with reduced land disposal activities during the year while cash and cash equivalents was modest at RM15.8 million at end-FY2013 (FY2012: RM10.5 million).

Trinity’s total borrowings of RM274.6 million (excluding Ample Zone’s debt) and trade and other payables of RM932.5 million as at end-FY2013 remain sizeable, although a declining trend is observed in recent years. MARC understands that the group has 1,878 acres of land valued at RM976.0 million; the proceeds from the disposal of the land are expected to be utilised towards these obligations. 

Trinity’s rating could come under pressure for a downgrade if the group does not take meaningful measures to address its financial obligations and/or if any action by its creditors leads to a potential acceleration of its debt.

Contacts:

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

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