Ingress Sukuk Bhd - 2009 Credit Commentary Report

MARC has lowered its rating on Ingress Sukuk Berhad’s (ISB) RM160 million Sukuk Al Ijarah (Sukuk) to BB-IS from BBB-IS. The lowered rating remains on MARCWatch Negative. ISB is a wholly-owned funding vehicle of auto parts manufacturer, Ingress Corporation Berhad (Ingress).

Since MARC’s downgrade of ISB’s sukuk rating on March 31, 2009, ISB has failed to make a RM25 million payment into the Ijarah Service Rental Account (ISRA) within the required deadline of April 9, 2009. Its Sukukholders have not approved the waiver of the sinking fund build-up requirement and although the Ijarah Agreement provides a remedy period of 30 days to meet the shortfall in the ISRA, it is unlikely that Ingress will be able to comply with the requirement given its strained liquidity position as well as the lack of meaningful progress in its asset disposal initiatives. Accordingly, the rating downgrade reflects increased likelihood of payment default with respect to the upcoming Sukuk redemption on July 9, 2009.

The MARCWatch Negative, therefore, incorporates the possibility of the rating being further lowered if ISB fails to meet its sinking fund build-up requirement within the 30-day remedy period. MARC will continue to monitor the progress of Ingress’ debt restructuring exercise which was recently announced.