MARC has affirmed the short and long-term ratings of MARC-2ID and A-ID (A minus, Islamic Debt) to Paradym Resources Industries Sdn Bhd’s (PRI) Islamic Commercial Paper/Medium Term Notes Issuance Programme (Islamic CP/MTN). The reaffirmation of the ratings reflects PRI’s commendable growth of its financial position and PRI’s status as a reputable manufacturer of superior quality copper products. PRI’s ratings is also continued to be supported by the contracts awarded by The Royal Mint of Malaysia Sdn Bhd (RMM) and Bank Negara Malaysia (BNM) to PRI. Moderating PRI’s credit strength is its relatively low capital position and vulnerability to product substitution.

PRI is primarily engaged in the manufacturing and selling of copper rods, copper wires and copper strips particularly for the power and telecommunication industries. PRI had entered into an agreement with RMM to supply and deliver Cupro-Nickel 25 (CuNi) strips to RMM for its blanking line for coins, on behalf of BNM. Simultaneously, PRI had also entered into an agreement with BNM to purchase the raw material for the project. RMM is obliged to take-up the whole contracted amount, thus substantially mitigating demand risk for the project. Since December 2004, PRI has started to procure raw materials and commenced the production of CuNi.

The newly acquired machineries, via the bond proceeds, will enable PRI to produce other alloys which would further enhance its bottom line, going forward. The new machines enable PRI to produce
approximately 40 different copper alloys allowing it to reduce the concentration risk in terms of producing only a few products while at the same time allowing it to expand. The project’s credit risk is mitigated given that the CuNi project’s payments will be made by BNM and RMM. The stable and predictable cash flow can substantially meet PRI’s obligations toward the CP/MTN.

Over the past two financial years, PRI managed to record major improvement in its profitability after securing more contracts. While PRI’s operating margin has dropped to single digit, due to higher operating costs, its earnings from operations is still able to cover its debt obligations as depicted by the adequate OPBIT interest coverage. In line with MARC’s projection, PRI’s debt to equity ratio touched 4.0 times as at FY2004 after the issuance of the Islamic CP/MTN. Nevertheless, as of September 2005, PRI has pared down its borrowings to reach a debt to equity ratio of 3.7 times, well below the covenanted 4.25 times.

Under the issue structure, 10% of the proceeds from the CuNi projects would be captured under the designated account specifically earmarked for the redemption of the bonds. In addition, an amount of RM1.5 million was pre-funded (utilising bond proceeds) and is to be maintained at all times. These covenants serve to mitigate liquidity risk. Refinancing risk is reduced by the serial redemptions of the Islamic CP/MTN.