MARC has downgraded Malaysian Merchant Marine Bhd’s (MMM) RM120.0 million Al-Bai’ Bithaman Ajil Serial Bonds (BaIDS) rating from AAID to AA–ID; reflecting its weakened operating cash flow protection measures due to the combined effects of significantly lower operating cash flows and higher operating cost. Future operating cash flow required to meet its operating expenses may further impair its financial position should rising costs remain unchecked.

MMM specializes mainly in vessel management and will continue to focus on shipping as its core business. Currently, the Group owns and operates a fleet of 11 vessels with a total carrying capacity of 59,565 dead-weight tonnes (DWT), all of which are registered in Port Klang, Malaysia, except one vessel registered in Philippines and Panama (dual flag). Out of these 11 vessels, 6 are tanker vessels, 4 are vehicle carrier vessels (RORO) and 1 bulker carrier vessel. Although the Group’s revenue reached its highest in FY2005 at RM127.0 million, its pre-tax profit, however, is trending downward due to high operating costs arising from the increase in bunker cost and extended drydock period that led to the shrinking operating margin, translating into lower operating profit interest coverage.

Moving forward, MMM would focus more on its tanker division whilst working closely with its strategic alliance cum major shareholder, M3nergy Berhad, to venture into the lucrative oil and gas industry as part of its future expansion. The future outlook of the Group is closely correlated to the country’s dependence on shipping services since more than 95% of Malaysia’s total trade is virtually seaborne. Moreover, it is believed that the ASEAN Free Trade Agreement (AFTA) will further expand the demand of RORO vehicle fleet space once it is fully implemented.

Despite higher total borrowings (RM188.2 million) by 2.16% incurred in FY2005, the Group managed to reduce its debt leverage to 0.71 times (FY2004: 1.18 times). This was mainly due to a significant increase in shareholders’ equity, on a 97.8% increase in share capital to RM246.7 million. During FY2005, MMM implemented a rights issue exercise on its ordinary shares and Islamic preference shares (IPS) amounting to RM56.7 million and RM54.2 million respectively, coupled with a bonus issue exercise amounting to RM5.7 million and RM5.4 million respectively.