MARC has downgraded Maxisegar Sdn Bhd (MSB)’s RM250.0 million Al Bai Bithaman Ajil Islamic Debt Securities (BaIDS) from the rating of AID (A flat, Islamic Debt) to BBID (BB flat, Islamic Debt). Concurrently, MARC has also placed the rating on a MARCWatch with a Negative Outlook. The severe downgrade of the BaIDS to non-investment grade securities was based upon the rapid deterioration of MSB’s cash position after its last profit payment made in August 2005; failure of the company to replenish its DSRA account, and the lack of tangible progress in the property development project, since our last review, that constitutes the repayment source for the BaIDS.

MSB, a wholly owned subsidiary of Talam Corporation Berhad (TCB), is principally involved in property development activities and investment holding.

Under the issue structure, progress billings from six phases within the Taman Puncak Jalil (TPJ) development have been assigned to the Facility as the source of repayment for the BaIDS. To date, four out of the six phases have been launched and recorded over 90% take-up rate. However, at 30 September 2005, the average percentage of work completed remains low at 10.5% as a result of supply chain disruptions and labour issues. The total amount unbilled remains largely unchanged since the last review in December 2004, indicating that construction activities have come to a virtual standstill.

In October 2005, MARC placed MSB’s BaIDS on a rating watch with developing outlook; reflecting an inability to meet development milestones and failure to replenish the DSRA account.

The balance in the DSRA account stood at RM145,661 as at 16 January 2006, representing a shortfall of RM4.65 million compared to the next coupon payment of RM4.8 million due in February 2006. While MARC was informed that some arrangements to address the construction of the projects are being pursued with a reputable party, its progress cannot be ascertained at this juncture. MSB’s financial profile is vulnerable to further deterioration with the absence of meaningful improvement in the progress of development activities.

The negative outlook takes into consideration the liquidity pressure faced by MSB that may adversely impact the company’s ability to service its debt obligations as they become due. MARC will continue to monitor the latest developments of MSB and disseminate any subsequent rating implications, if any, in due course.