The rating of BBB assigned to Mithril Berhad (Mithril) reflects the future businesses of the company; a tight underlying issue structure; and moderate pro- forma debt leverage upon the finalization of the restructuring exercise. The rating is, however, restrained by Mithril’s exposure to the manufacturing industry, in particular the brick manufacturing business.

Mithril was incorporated as a shell company in April 2002 to facilitate the proposed restructuring exercise of Tajo, which is an affected listed issuer pursuant to the KLSE’s Practice Note 4/2001 (PN4/2001). The restructuring exercise involves the proposed capital reconstruction and cancellation of share premium account of Tajo; scheme of arrangement; fund raising exercise (including the issuance of the RCSLS); acquisition of Saferay (M) Sdn Bhd (Saferay) & Menara MAA in Kota Kinabalu and Kuching; and debt settlement of Tajo’s secured and unsecured creditors.

Upon the completion of the restructuring exercise, Mithril will hold 100% equity stake in Tajo and assume the latter’s listing status. The business activities of Mithril will comprise manufacturing and trading of architectural mouldings (under Saferay); leasing of commercial properties; and manufacturing, distribution and selling of bricks (under Tajo). Under the conditional sale and purchase agreement between Mithril and Saferay’s vendors, the latter have provided a guarantee that the aggregate post-tax profit of Saferay shall not be less than RM18 million for the next three financial years (30 April 2003 – 30 April 2005). Besides Saferay, Mithril will also assume the main business of Tajo, as a brick manufacturer.

Mithril will also be involved in leasing of commercial properties, mainly the two Menara MAA in Kota Kinabalu and Kuching. Under the proposed restructuring exercise, Mithril & Tajo have executed conditional sale & purchase agreements with the building owner, Malaysian Assurance Alliance Berhad (MAA); the owner will grant Mithril & Tajo a five-year fixed term lease that would provide a stable income stream to Mithril.

Proceeds from the RCSLS issue will be utilized to purchase the two Menara MAA, together with the proceeds from the ICULS issue. The holders will have the option to convert the RCSLS into Mithril’s ordinary shares from the beginning of the second year to the end of the eighth year.

Liquidity risk under the issue structure is somewhat mitigated through the maintenance of a six-month coupon reserve in a Coupon Reserve Account (CRA) that may be utilized to cover any shortfall in funding for the purpose of meeting coupon payments. Funds are also required to be gradually built up in a Debt Service Account (DSA), with 100% of the forthcoming coupon payment to be available one (1) month before the scheduled coupon payment date. A Sinking Fund Account (SFA) shall also be opened to capture rental proceeds from the two Menara MAA. A debt-equity cap of 1.50 times has been imposed under the issue structure.