MARC has withdrawn the ratings of the bank-guaranteed tranches (Tranche I, II, III and IV) as the bondholders were fully repaid by the bank guarantors on 9 December 2004 following a call for default by the bondholders on 30 November 2004. The bondholders called for a default as Perak-Hanjoong Simen Sdn Bhd (PHS) missed the payment of the profit and repayment of the principal on 17 November 2004. For the non-guaranteed tranche (Tranche V), MARC continues to place the rating on watch as the Company had requested from the bondholder to grant an indulgence for the repayment of the principal and profit due and is working with the new shareholder on a scheme to regularize the Company’s deteriorating financial position.

For fiscal year ended December 2003, PHS registered a pre-tax loss of RM53.2 million on the back of RM343.7 million revenue. The loss was attributed to the high financing expenses of RM63.6 million as compared to only RM15.8 million in FY2002. Nevertheless, at operating level, the company remains profitable with an operating profit margin of 3.0%. MARC foresees the company to continue to incur loss for the current financial year given the softening demand for cement particularly in the first half of 2004 attributed to the slowdown of construction works due to the shortage in steel supply and the continued high financial charges.

In terms of the Company’s cash flow coverage, PHS had to rely on trade line and overdraft facilities to support its operating cash flows for payment of its financing costs due during the financial year. This is evident by its negative debt service cover ratio (DSCR) for the period. PHS, however, is only required to comply with the covenanted minimum DSCR of 1.3 times starting from September 2004.

The Company’s debt levrerage position for FY2003 rose to 1.9 times from 1.7 times in the previous financial year as shareholders’ funds were eroded by the substantial loss incurred for the year. The ratio had breached the covenanted level of 1.75 times imposed under the bank guarantee facility.

The domestic cement industry is still dominated by the Lafarge Malayan Cement Group which commands almost half of the cement market, both in terms of production capacity and market share of cement sales. PHS ranked second both in terms of market share (16.0% of cement sales) and production capacities (3.4 million per annum for cement and 3.0 million tonnes per annum for clinker).