MARC AFFIRMS ITS B-ID RATING ON TALAM TRANSFORM BERHAD’S SETTLEMENT BaIDs

MARC AFFIRMS ITS B-ID RATING ON TALAM TRANSFORM BERHAD’S SETTLEMENT BaIDs

Aug 1, 2014 -

MARC has affirmed its rating on the outstanding RM87.4 million Settlement Bithaman Ajil Debt Securities (Settlement BaIDs) of Talam Transform Berhad (Talam, formerly known as Trinity Corporation Berhad) at B-ID with a stable outlook. The rating incorporates Talam’s limited business prospects in property development, its sizeable financial obligations relative to earnings and its continued reliance on asset disposals to generate liquidity to meet its financial commitments.

Talam’s outstanding Settlement BaIDs are partially secured against property units and a land parcel in Taman Puncak Jalil in Bukit Jalil, Kuala Lumpur, with an aggregate value of RM21.8 million as estimated by the company. Given the low security coverage afforded by the collateral, repayment of the BaIDs, which mature on June 28, 2019, will likely be met with proceeds from the disposals of other land parcels valued by the company at RM1.1 billion as at end-April 2014. MARC highlights that a cross-default provision under the Settlement BaIDs could be triggered should an event of default be declared by the sukukholders of Talam’s wholly-owned subsidiary, Ample Zone Sdn Bhd (Ample Zone), which had earlier defaulted on its sukuk obligations. Nonetheless, Ample Zone’s outstanding sukuk is likely to be fully redeemed before the due date on October 31, 2014 given that proceeds from the sale of the collateralised assets are more than sufficient to meet the remaining balance of RM0.9 million.

MARC notes that the group has continued to make progress in reducing its financial obligations largely with proceeds from asset disposals. In this respect, timely asset disposal will remain critical to Talam’s ability to meet its near-term obligations. The group’s borrowings as well as its trade and other payables continue to remain elevated at RM261.4 million and RM844.9 million as at end-April 2014 respectively (FY2014: RM290.5 million; RM919.3 million). MARC also opines that Talam’s property development prospects could be constrained by lingering concerns over its business track record, although the group completed all of its legacy stalled projects in 2013 and is eligible to develop and market property projects on its own accord without a joint-venture partner.

For financial year ended January 31, 2014 (FY2014), Talam’s revenue remained flat at RM216.7 million (FY2013: RM212.6 million), largely supported by sale of development land. The increase in operating profit to RM66.6 million (FY2013: RM21.9 million) which was mainly attributable to a gain on disposal of investment properties of RM100.7 million was largely offset by financing costs of RM57.7 million (FY2013: RM41.4 million). For 1QFY2015, Talam recorded a loss before tax of RM20.2 million due to higher cost of sales and administrative expenses. MARC views that Talam’s heavy interest burden and high operating costs will continue to exert pressure on its future profitability and its already weak liquidity position.

Cash flow from operations (CFO) stood lower at RM20.1 million in FY2014 (FY2013: RM36.4 million) and further declined to negative RM41.8 million in 1QFY2015 mainly due to high working capital requirements. Overall, the group’s liquidity position remained weak with a modest cash balance of RM20.2 million against total debt of RM261.4 million as at end-April 2014 (FY2014: RM24.2 million; RM290.5 million).

Talam could face downward rating pressure if there is any indication of potential acceleration of its debts or further deterioration of its liquidity position. On the other hand, any improvement in the rating will depend on the group’s ability to achieve a sustainable turnaround in its financial performance.

Contacts: Joan Leong, +603-2082 2270/ joan@marc.com.my; Yap Lai Ken, +603-2082 2247, laiken@marc.com.my.

Liew Hor Yan

Manager, Information Development