Shamelin Bina Sdn Bhd’s (“SBSB”) rating has been affirmed at A- which reflects, Koperasi Shamelin Berhad’s (KSB) satisfactory asset quality arising from the collection arrangement with ANGKASA (Angkatan Koperasi Kebangsaan Malaysia Berhad); low level of job transfers and resignations in the public sector; positive cashflow generating capacity throughout the tenure of the Murabahah Medium Term Notes Issuance (“MMTN”) Facility; as well as a protective debt issue structure. The moderating factor continues to be the risk profile of the consumer-related industry characterized by increasing competition and vulnerability to economic cycles.

SBSB, a wholly owned subsidiary of KSB, has been designated as the issuing vehicle whereby, proceeds from the issuance of the MMTN will be largely on-lent to KSB for the purpose of refinancing its existing borrowings and generating new consumer financing. Hence, cashflows from KSB’s operations will be the main source of redemption of the Murabahah Notes.

KSB is established under the Co-operative Societies Act 1993 and its main source of revenue is derived from consumer financing. A wide range of consumer products including furniture, electrical appliances and other household products are available for its members which comprise of mainly civil servants. Consumer financing provided is based on the Al-Bai Bithaman Ajil principles, whereby repayments are effected via monthly deductions of the consumers’ salaries; the collection of which is arranged through ANGKASA. KSB’s loan portfolio quality is relatively good, based upon the low level of delinquency in the public sector accounts, arising mainly from job transfers and resignations.

Revenue in FY2003 decreased by 10% to RM2.1 million as compared to RM2.4 million in FY2002 due to limited available internal funds to disburse new consumer financing (the MMTN were only issued in March 2004). Furthermore, with the completion of the property development by KSB’s subsidiary, the substantial decrease in commission earned from the sale of the said properties led to a more than 50% dip in operating margin to 94% in FY2003 (FY2002: 216.7%). However, with the enlarged funding base following the issuance of the Murabahah Notes under the MMTN Facility, KSB’s interim nine months financial results ending 30 September 2004, reported a significant rise in revenue to RM4.3 million in comparison to RM1.2 million in the previous corresponding period.

Liquidity risk is mitigated through the serial redemption of the Murabahah Notes; the availability of funds in the Trading Profit Account to meet the payment obligations under the MMTN in the event of insufficient funds in the Collection Account; liquidity support provided by the maintenance of two secondary notes at all times in the Finance Service Reserve Account; and the two-year build up of funds in the Sinking Fund Account (SFA) prior to the primary notes redemption date of each tranche. In addition, in the event of negative shareholders’ funds for SBSB, KSB has provided an undertaking to inject additional equity or extend inter-company financing to SBSB.

KSB’s debt equity level in FY2003 decreased to 0.15x in comparison to 0.33x in FY2002 mainly attributed to a 50% reduction in bank borrowings. Consequently, with the drawdown of the MMTN, KSB’s pro-forma debt equity level is expected to gradually rise, peaking at 1.49x in FY2007 and decreasing to 0.01x at the end of the facility period. It is noted that the MMTN constitutes the main debt obligation of SBSB/KSB.