MARC today has downgraded its Islamic debt rating on Perwaja Steel Sdn Bhd's (Perwaja) RM400 million Murabahah Medium Term Notes (MMTNs) Programme to CID from BBID.

MARC today has downgraded its Islamic debt rating on Perwaja Steel Sdn Bhd's (Perwaja) RM400 million Murabahah Medium Term Notes (MMTNs) Programme to CID from BBID. The rating remains on MARCWatch Negative where it has been placed since April 17, 2013. Perwaja has outstanding RM110.0 million notes under its MMTN Programme, of which RM50.0 million is due for repayment on September 25, 2013.

The rating downgrade signals a high risk of imminent default on the outstanding MMTNs arising from its extremely tight liquidity position. MARC understands that Perwaja has recently been served with a writ of summons by national utility company, Tenaga Nasional Berhad over unpaid bills together with interests and costs amounting to RM44.7 million. A similar development was highlighted in MARC's press release dated July 5, 2013 pertaining to Perwaja's gas bill arrears of RM146.1 million with Petroliam Nasional Berhad.

The cash-strapped steel maker is unlikely to receive any cash infusion to meet its forthcoming RM50.0 million debt repayment on September 25, 2013 from Perwaja's ultimate holding company Kinsteel Berhad which recently failed to make RM40.0 million commercial paper (CP) repayment on September 5, 2013. Perwaja is expected to seek an indulgence from its noteholders for a deferment on the upcoming MMTN payment. MARC believes that there is a heightened risk that the MMTNs will be subjected to standstill on payments.

MARC will lower the rating to DID in the event Perwaja fails to meet the upcoming payment of RM50 million MMTNs on the due date.

Contacts: Taufiq Kamal, +603-2082 2251/ taufiq@marc.com.my; Ngiam Tee Wei, +603-2082 2268/ teewei@marc.com.my; Rajan Paramesran, +603-2082 2233/ rajan@marc.com.my

September 13, 2013