The rating of Europlus Corporation Sdn Bhd’s (ECSB) RM350.0 million Murabahah Underwritten Notes Issuance Facility (MUNIF) has been downgraded to MARC-4ID and placed on MARCWatch with negative implications. The downgrade reflects substantial deterioration in ECSB’s internal cash flow generation, making it unlikely, in MARC’s opinion, that ECSB will be able to meet its financial obligations by June 2006 in relation to the MUNIF in the absence of asset sales and new financings. Currently, the Issuer expects to receive RM545.2 million from locked in sales. The receipt of these receivables is contingent upon the completion of development works to be done. The company has not been meeting its sinking fund account (SFA) payments and has sought noteholders’ indulgence and consideration to carry out a refinancing scheme. As at 31 December 2005, the balance in the SFA stood at RM5.92 million as opposed to a minimum amount of RM119.75 million. Meanwhile the balance in the debt service reserve account (DSRA) as at the same date was RM1.84 million. The outstanding facility balance, in the meantime, stands at RM196 million.

The redemption date of this facility was initially for September 2005. However, in December 2004, ECSB obtained Securities Commission’s approval to extend the redemption date to October 2006. In July 2005, ECSB sought noteholders’ indulgence to work out a refinancing scheme by 31 December 2005. Further to that, another appeal was made in December 2005 for an extension of up tol June 2006 or the time of its proposed issue for the refinancing scheme. The proposed issuance is in the form of RM300 million Al-Bai’ Bithaman Ajil (BaIDS) which is expected be completed in March or April 2006.

The MARCWatch placement of the company’s rating reflects concerns that the balance in the DSRA will not be sufficient to cover monthly roll over profit beyond February 2006. Nevertheless, the Issuer expects to
receive progress payments for works done to date amounting to RM4.78 million by end of January 2006 of which RM2.5 million will be set aside to replenish the DSRA account. These monies (if materialised and received in time) will enable the Issuer to service the profits for the next four months. MARC will monitor ECSB’s progress in its restructuring efforts via debt refinancing in order to resolve the MARCWatch listing.

Europlus Corporation Sdn Bhd (ECSB) is a wholly-owned subsidiary company of Europlus Bhd (Europlus) which is a 99.99% subsidiary of Talam Corporation Berhad. Total secured sales from Bukit Beruntung I, II, and III, Lagoon Perdana, Kinrara Section 3 and Pulau Melaka projects have been earmarked as the source of repayment of this issue. In a series of meetings with the Issuer, MARC has been informed that progress of the projects assigned for the repayment of the MUNIF has been stalled due to shortage of labour and building materials and termination of contractors.

As at year end January 2005, ECSB’s revenue increased by 3.4% to RM205.2 million. Profit before tax also increased substantially by more than 100% to RM18.3 million (FY2004: 1.8 million). On the other hand, ECSB’s cash flow from operations deteriorated by 92.3% to RM13.3 million. As at FY2005, ECSB’s debt leverage stood at 1.07 times (FY2004: 1.02 times).

MARC’s assessment was done based on the audited financial information for the year ending 31 January 2005. However, neither the latest management accounts nor the latest progress reports were made available to MARC through out the review period. MARC will continue to monitor the latest developments of ECSB and disseminate any subsequent rating implications, if any, in due course.