Ratinale The corporate debt rating of PECD Berhad’s (PECD) RM200 million Serial Fixed Rate Bonds Programme has been downgraded from A to A- with a stable outlook. The rating reflects MARC’s concerns over cost overruns and the unsettled variation order (VO) claims for the Melut Basin Marine Export Terminal Project in Sudan, which has weakened the Group’s financial profile. These risks are only partially offset by PECD’s continued success in clinching additional overseas contracts. The Group has represented that it is in negotiations to dispose its property arm, Peremba Jaya Holdings Sdn Bhd (PJHSB) to Putrajaya Holdings Sdn Bhd (PJH). This exercise if completed will significantly reduce the Group’s borrowings.

PECD is listed on the Main Board of Bursa Malaysia. It is a local construction company with twenty years of experience and has also diversified into engineering, procurement, construction and commissioning (EPCC) in the oil and gas sector in addition to property development. It successfully ventured offshore in 2004 due to the contraction in the domestic construction industry. Since then, it has clinched several contracts in Dubai, Sudan and Indonesia. PECD’s offshore projects is expected to contribute 70% of the Group’s revenue in 2006 and 2007. The Group also aims to capitalise on the Ninth Malaysia Plan (9MP) to fill up its local order book.

The Group has sacrificed margins in order to break into the lucrative Middle East construction market. Compounding the thin margin, cost overruns from its Sudan project, have strained the Group’s bottom-line. As a result, operating profit margins for FYE2005 stood at merely 3.0%. PECD’s D/E ratio was at 1.61 times as at 1Q2006 (PECD will have to maintain a D/E of not more than 1.5 times starting 28 June 2007). To address the cash flow position, PECD is improving its certification, billing and collection processes.

As at June 2006, PECD’s order book stood at RM1.3 billion which will keep the Group busy beyond 2007. Leveraging on its earlier projects, the Group has established itself as an emerging player in the construction industry in the Middle East focusing in the UAE and Sudan and the energy sector in Sudan and Indonesia. Although the Group’s revenues have been increasing steadily supported by foreign contracts, nevertheless both profits and margins have been trending downward since 2004 mainly due to a contraction in the domestic construction industry and lower margins from overseas contracts. PECD’s interim results for 1Q 2006 continue to reflect this downward trend. As at 1Q2006, PECD recorded a revenue and profit before tax of RM205.8 million and RM1.0 million respectively, registering a significant decrease from the previous corresponding period (1Q2005: revenue- RM300.1million, PBT - RM9.6million).