Intelbest Corporation Sdn Bhd - 2007

MARC has downgraded the ratings of Intelbest Corporation Sdn Bhd’s (ICSB) RM110.0 million Bai Bithaman Ajil Bonds (BaIDS) and RM50.0 million Murabahah Notes Issuance Facility (MUNIF). The ratings on ICSB’s Series 1 BaiDS of RM20.0 million, Series 2 BaIDS of RM35.0 million and Series 3 BaIDS of RM55.0 million have been downgraded to B+_ID from BBB+_ID and BBB_ID respectively; whilst the rating on its RM50.0 million MUNIF facility has been downgraded to MARC-4_ID from MARC-3_ID. Concurrently, the ratings have been removed from MARCWatch Negative, where they had been placed since 23 January 2007. The ratings outlook is negative.

The rating actions follows ICSB’s inability to meet the earlier redemption schedule of Series 1 BaIDS and remaining MUNIF amounting to RM20.0 million and RM24.0 million respectively. The group’s financial performance has been adversely affected by the stop work orders issued by the authorities on 1 June 2006 in respect of its Ukay Bistari project, following a landslide incident. ICSB is currently in breach of certain financial covenants under the rated bonds and notes, as confirmed by the trustees. ICSB obtained bondholders’ approvals on 16 February 2007 (for BaIDS) and 1 March 2007 (for MUNIF); and Security Commission’s (SC) approval on 11 May 2007 with respect to a Proposed Debt Restructuring Scheme (DRS) under which the redemption dates for the total outstanding amount of RM130.0 million owing to its bondholders have been extended up to 31 December 2010.

ICSB has four property projects located in Selangor, namely, Ukay Bistari (two parcels), Saujana Putra and Lestari Perdana which form the source of repayment for the MUNIF and BaIDS facilities. As at 31 December 2006, expected total gross development value (GDV) was RM806.46 million of which RM485.81 million had been launched while total GDV sold stood at RM428.57 million, representing an average take-up rate of 78.0%. Future sales are expected to be sustained by the remaining unlaunched phases, with a total value of RM320.65 million under the Saujana Putra and Lestari Perdana developments. However, prospects for future sales would be affected by reputational issues currently faced by the group.  As at 31 December 2006, sales cancellations by 316 buyers involved an estimated GDV of RM42.0 million. 

ICSB’s unaudited FY2006 results showed lower revenue with most of its projects approaching the tail-end of the development. It continued to record losses as a result of higher finance costs during the year in spite of a higher operating profit relative to the previous year. Its operating profit margin reflects improved profit margins from the Platinum 88 and Damai Bistari (Ukay Bistari) projects as well as lower administrative and operating expenses. MARC takes note with concern that ICSB’s FY2006 accounts remain unaudited and that the previous auditors had not been able to provide an audit opinion on the FY2005 accounts.

ICSB had negative shareholders’ fund of RM16.5 million as a result of accumulated losses and FY2005’s RM20.7 million provision for diminution in the value of investments in quoted shares. At present, its borrowings comprise mainly the rated bonds and notes outstanding which amount to RM130.0 million in total. The outstanding  amounts  under  the  MUNIF  and  BaIDS facility  are secured  by future progress billings of RM178.81 million from the sold units of identified developments as well as unlaunched units. A security coverage of 1.38 times is currently provided by the unbilled future receivables from sold units. The unlaunched phases, meanwhile, have an estimated GDV of RM320.6 million. ICSB is required to maintain a Security Coverage Ratio of not less than 2.0 times under the terms of the issuance.

MARC believes that the progress of the construction over the next few months will be critical to the group’s financial turnaround and the maintenance of an adequate security coverage ratio. The negative outlook reflects uncertainty as to the group’s ability to meet the conditions for lifting the stop work order in as short a time frame as possible to stem further deterioration in its credit profile.