MARC has affirmed the rating of MARC-3ID assigned to Stenta Films (Malaysia) Sdn Bhd’s (Stenta) RM90 million Murabahah Notes Issuance Facility (MUNIF). The rating affirmation reflects the company’s leading position in manufacturing quality Biaxially Oriented Polypropylene (BOPP) films and improving financial profiles of both Stenta and its parent company - P.T. Argha Karya Prima Industry of Indonesia (AKPI). The positives factors are nonetheless moderated by Stenta’s exposure to any negative developments in the BOPP films industry and concerns over the company’s ability to pass through increases in the cost of raw materials or resins to customers.

Stenta is the leading domestic BOPP films manufacturer commanding approximately 50% market share in terms of local production of BOPP films. On the back of strong operational and technical support from AKPI, which has more than 20 years of experience in producing BOPP films, Stenta has earned a good reputation by producing quality films. The food and tobacco sectors currently consume much of Stenta’s production. The company has developed a niche in the tobacco market being the regional supplier for Philip Morris and Japan Tobaco International as well as the only Asian Global Qualified Supplier for British American Tobacco. Stenta’s high quality BOPP films has given the company a competitive edge over the low-cost producers in China. Nevertheless, Stenta does not exclude the possibility of setting up plants in China to





capitalize on the low production costs in their country
in future.

Stenta is somewhat exposed to the volatile pricing of petroleum-based resins which accounted for 50% of its cost of sales. Historically, the company has been able to pass the full cost increase to its quality-conscious customers except during the Asian financial crisis when there was an excess supply in the market due to dumping by the Korean and Thailand BOPP film suppliers.

Refinancing risk is mitigated through serial redemption of the MUNIF. Liquidity risk, on the other hand, is alleviated by the maintenance of cash reserves in designated accounts. Upon issuance of the MUNIF, RM5.0 million was deposited into a Maintenance Account serving as a liquidity buffer for the bondholders. In addition, RM2.5 million, equivalent to 50% of the next scheduled redemption sum in September 2004, has also been deposited into the Sinking Fund Account.

Stenta’s profitability improved, aided by lower financing costs and discount on early loan repayment of funded by part of the proceeds from the MUNIF. The same factors had also contributed to improvement in cash flow protection measures. The company’s debt leverage has been on a downtrend for the last five years aided by the consistent growth in accumulated earnings coupled with reduction in borrowings.