Haisan Resources Berhad - 2008 / 2009

MARC has removed its rating of A- on Haisan Resources Berhad (HRB)’s RM12 million outstanding Bonds from MARCWatch Negative and affirmed the rating. Concurrently, it has assigned a negative outlook to the rating. The rating was first placed on MARCWatch Negative on August 20, 2008 following a breach of its debt-to-equity (DE) covenant, its weak first half year 2008 performance, and uncertainty surrounding the timing and the value of proceeds from proposed disposals of non-core assets pursuant to its regularisation plan.

The rating action follows approval by bondholders of a waiver of its DE covenant through the maturity date of the Bonds on June 21, 2010, and for partial redemption of the Bonds by utilising the sinking fund balance of RM18.0 million. HRB is also required to redeem at least RM3.0 million of the remaining outstanding Bonds of RM12.0 million every three months commencing September 2009 and before the maturity date. HRB had on November 28, 2008 utilised the sinking fund balance to redeem RM18.0 million of the RM30.0 million Bonds.

HRB, which is principally involved in the whole spectrum of the temperature-controlled logistics, industrial refrigeration and ice industry, has been negatively impacted by worsening domestic and regional economic conditions. For the full year unaudited results ended December 31, 2008 (FY2008), HRB recorded a drop of 14.9% in revenue to RM102.7 million (FY2007: RM120.7 million). In tandem with the lower revenue achieved, the group recorded a loss before tax of RM6.2 million (FY2007: +RM6.9 million). The group’s dismal financial performance in FY2008 is mainly attributed to fewer engineering projects undertaken, higher finance costs and tax expenses. Although HRB’s operating cash flow was RM32.7 million in FY2008, its liquidity position remained strained as reflected in cash and bank balances of only RM4.0 million vis-à-vis short-term borrowings of RM77.9 million including RM46.2 million of bank overdrafts.

The rating could be lowered if meaningful improvement in HRB’s liquidity and profitability is not achieved in the next few quarters.

Major Rating Factors

Strengths

• Established name in temperature-controlled logistics, industrial refrigeration and ice industry in Malaysia.

Challenges/Risks

• High debt leverage (above cap of 2.0 times);
• Liquidity position remained strained; and
• Aggressive expansion funded by debt financing.