The rating assigned to Antara Steel Mill Sdn Bhd’s (Antara) Islamic debt is supported by its association with one of the largest steel players in Malaysia, the Lion Group; good operating track record; strong overseas demand for its hot briquetted iron (HBI); tight issue structure and sustainable financial profile; but is moderated by the cyclicality of the steel industry.

Antara became part of the Lion Group after it was acquired by Amsteel Mills Sdn Bhd (Amsteel) from Johor Corporation in 2002. The Lion Group, one of the largest conglomerates in Malaysia, has been engaged in the steel business for over 20 years and the business continues to be the main contributor to the Group’s revenue and profit.

Prior to the acquisition by Amsteel, Antara’s facilities were under-utilized at less than 50% on average but as at March 2005, its steel mill was operating at 105% and 52% for billets and steel bars respectively due to the improved operational efficiency and market demand. The production of hot briquetted iron (HBI) in Labuan has also been on an upward trend with utilization rate of close to 100%.

Under the management and control of Amsteel, Antara experienced a revenue growth of more than 100% during FY2004. Going forward, Antara is projecting an average operating profit margin of 15% after incorporating the 40% expected revenue contribution from the HBI operations and upgrading of the facilities in Johor and Labuan in FY2005.

Liquidity risk has been moderated under the BaIDS issue structure through the maintenance of one pre-funded semi-annual profit payment at all times and the priority ranking accorded to payment obligations under the BaIDS in the Revenue Account payment waterfall; ahead of operational expenditure and working capital requirements.

In terms of future debt service cover ratio, Antara has projected an average and minimum debt service cover ratio (DSCR) of 3.8 times and 1.8 times respectively of which the projection also assumed an average annual dividend payout ratio of 5.5% starting in FY2007. The pro-forma debt leverage for Antara (after acquisition of the HBI operations) is expected to be 2.0 times upon issuance of the RM500 million BaIDS.