MARC has affirmed the rating for Mithril Berhad’s (Mithril) RM59 million Redeemable Convertible Secured Loan Stocks (RCSLS) at BBB, reflecting the recent completion of the corporate exercise with the injection of new businesses and a tight underlying issue structure. The rating is, however, constrained by Mithril’s exposure to the manufacturing industry, in particular the brick manufacturing business and limited historical track record to assess the company’s financial strength going forward.

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 involved capital reconstruction and cancellation of the 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.

The exercise was completed in April 2004 and Mithril was listed on the Second Board of Bursa Malaysia in the same month, after assuming Tajo’s listing status. Mithril’s current business activities comprise of 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 three financial years (30 April 2003 – 30 April 2005).

The leasing of commercial properties involves the leasing of two Menara MAA in Kota Kinabalu and Kuching to Malaysian Assurance Alliance Berhad (MAA) that would provide a stable income stream to the company. Proceeds from the RCSLS issue were utilized to purchase the two Menara MAA, together with the proceeds from an 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) has also been 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.