The rating of Malaysian Newsprint Industries Sdn Bhd’s (MNI) RM923 million Bai’ Bi Al-Taqsit nominal value fixed rate serial bond programme (BBAT) has been reaffirmed at BBBID +(s) reflecting the company’s dominant position as the sole newsprint producer in the country; coupled with anti-dumping duties imposed by the government on imported newsprint which directly limit overseas competition; and recovery of newsprint prices since 2H 2003. The rating, however, is moderated by the cyclical nature of the newsprint industry and vulnerability to potential rising newsprint manufacturing costs.

The strengthening of global newsprint price in 2004 consequently witnessed positive growth in the company’s revenue by 15.4% from the previous year. Positive growth can also be attributed to the implementation of the anti-dumping policy which ensures that MNI’s newsprint price remains competitive and in line with world prices. Improved revenue subsequently resulted in operating margin returning to the black. In fiscal 2004, MNI’s operating margin was 6.5% (highest in the last three years).

Domestic newsprint price which was trading at USD590/MT in Q4 2004 is expected to rise by another USD50/MT in Q1 2005, driven by increasing advertising expenditure resulting from the country’s improving economic condition. According to RISI, Asia’s demand for newsprint is expected to grow by an average of 3.9% in the next five years, going forward.

The company’s revenue is partially secured as forty percent or 100,000 tonnes of its yearly newsprint production is secured through the Newsprint Offtake Agreements (NOA) entered into with New Straits Times Press, Pemandangan Sinar and Nanyang. The minimum offtake commitments somewhat mitigate MNI’s exposure to fluctuations in newsprint demand.

With improving revenue and operating margin, MNI’s losses were reduced to RM46.7 million for FY2004. MNI’s interest and debt servicing ability nonetheless exhibited improvement following a 55.8% increase in net cash generated from its operating activities. Consequently, both CFO interest and debt coverage ratios improved to 1.58x (FY2003: 0.99x) and 0.14x (FY2003:- 0.01x) respectively.

The bond restructuring scheme (which entails a 3-year deferment of the principal redemption from Dec 2004 to Dec 2006) completed in July 2004 was a stop-gap measure during the downturn in newsprint prices, allowing the company to accumulate sufficient funds based on the new redemption schedule. As at January 2005, MNI had fully reinstated its standby credit facility to its original limit of RM108 million.

From FYE June 2004, MNI’s debt leverage level rose marginally to 1.07x (FY2003: 1.05x) due mainly to eroded shareholders’ funds arising from the company’s accumulated losses of RM279 million.