RAM Ratings has maintained the Negative Rating Watch on the ratings of Syarikat Borcos Shipping Sdn Bhd’s (Borcos or the Group) 3 debt issues.

Published on 21 July 2014

RAM Ratings has maintained the Negative Rating Watch on the ratings of Syarikat Borcos Shipping Sdn Bhd’s (Borcos or the Group) 3 debt issues. The ratings were initially placed on Rating Watch, with a negative outlook, on 20 December 2013. For more details, please refer to our media release published on 20 December 2013.
Of the 3 debt issues, 2 are AAA(bg)-rated guaranteed issues that benefit from an unconditional and irrevocable bank guarantee extended by Bank Pembangunan Malaysia Berhad (BPMB, currently rated AAA/Stable/P1 by RAM), which covers the principal amount of the said issues. Meanwhile, the profit payments on the securities are pre-funded in a Finance Service Reserve Account (FSRA). The issues were placed on Negative Rating Watch following the withdrawal of monies from the FSRA to service intermediate profit payments, which is a technical breach of obligations under the transaction documents.
While the said FSRA had been replenished in February 2014, concerns remain on the integrity of controls in respect of the withdrawal of monies from the FSRA, given that the controls had previously been breached. Meanwhile, BPMB had, in April 2014, extended its bank guarantee to cover one period’s profit payment, where the original guarantee covers only the principal amount of both the bank-guaranteed issues. However, we understand that the extension is pending approval of the sukukholders and notification of the Securities Commission. If and when the extension comes into effect, the Negative Rating Watch on the bank-guaranteed issues shall be lifted and the ratings reaffirmed. Otherwise, the ratings shall be downgraded to that of Borcos’ stand-alone credit profile.
Meanwhile, the AA3 issue rating of Borcos’ third issue was placed on Negative Rating Watch primarily due to the deterioration of Borcos’ stand-alone credit profile, as a result of its stressed liquidity profile and weaker business profile.
The rating of the unguaranteed issue continues to benefit from support provided by BPMB, which has an indirect stake in Borcos (via a 90%-stake in Global Maritime Ventures Berhad, which in turn has a 100%-stake in GMV-Borcos Sdn Bhd that owns 100% of Borcos). This is demonstrated by the extension of a term loan by BPMB to Borcos for the redemption of the outstanding principal amount of RM60 million and profit payment of RM2.34 million, both of which are due on 19 September 2014. Nevertheless, we are maintaining the Negative Rating Watch on this issue pending assessment of Borcos’ stand-alone credit profile, given that the profile continues to deteriorate. In addition, we are seeking clarification on how further changes in Borcos’ management will impact its business direction.
Borcos’ 3 debt issues and their current ratings are as follows:
i)     RM125 million Bank-Guaranteed Sukuk Ijarah Medium-Term Notes (2010/2017):
       AAA(bg)/Rating Watch Negative
ii)     RM30 million Bank-Guaranteed Bai’ Bithaman Ajil Islamic Debt Security (2010/2017):
        AAA(bg)/Rating Watch Negative
iii)     RM160 million Sukuk Ijarah Medium-Term Notes (2008/2014):
        AA3/Rating Watch Negative
RAM’s Rating Watch highlights a possible change in an issuer's debt rating. It focuses on identifiable events such as mergers, acquisitions, regulatory changes and operational developments that place a rated debt under special surveillance by RAM. In a broader sense, it covers any event that may result in changes in the risk factors relating to the repayment of principal and interest.
Issues will appear on RAM's Rating Watch when some of the above events are expected to or have occurred. Appearance on RAM's Rating Watch, however, does not inevitably mean that the rating will be changed. It only means that a rating is under evaluation by RAM and a final affirmation is expected to be announced. A "positive" outlook indicates that a rating may be raised while a "negative" outlook indicates that a rating may be lowered. A “developing” outlook refers to those unusual situations in which future events are so unclear that the rating may potentially be raised or lowered.

Media contact
Evelyn Khoo
(603) 7628 1075
evelyn@ram.com.my