|
MARC has downgraded its ratings on Hytex Integrated Berhad’s (Hytex) RM100 Million Murabahah Underwritten Notes Issuance Facility / Islamic Medium Term Notes (MUNIF/IMTN) to MARC-3ID / BBB-ID from MARC-2ID /A-ID. The rating carries a developing outlook. The downgrade reflects the current strain on the apparel maker’s liquidity stemming from weaker industry fundamentals, recent operating losses, and its heavy debt burden. Although the group narrowed its pre-tax loss for the three months ended June 30, 2009 (1QFY2010) to RM4.0 million compared to RM12.8 million for the immediate preceding quarter, the recent losses have significantly eroded Hytex’s credit profile and near-term liquidity as well as its ability to support its debt obligations from its operating cash flow. Cash flow from operations (CFO) declined to only RM1.9 million in 1QFY2010 compared to RM24.6 million recorded in FY2008 while gearing rose to 2.06 times in 1QFY2010. Hytex continues to be saddled with high inventory levels, with an inventory turnover rate of 479 days in 1QFY2010.
MARC believes that Hytex’s profitability and cash flow will remain under pressure in the near term due to continued under-utilisation of its manufacturing capacity and the flat or declining trend in forward order volumes reported by global sportswear makers. The foregoing highlights the urgency of restructuring the MUNIF/IMTN to avoid payment default.
MARC understands that Hytex is in a fairly advanced stage in its negotiations with noteholders to restructure the MUNIF/IMTN and has obtained approval from the noteholders for the debt to be converted into a combination of term loans and redeemable convertible secured loan stocks (RCSLS).
The developing outlook reflects Hytex’s proposed debt restructuring scheme, which is still in progress and currently pending regulatory approval for the issuance of RCSLS. It also incorporates MARC’s view that successful completion of the debt restructuring is central to the stabilisation of Hytex’s credit profile and the easing of current liquidity pressure.
Hytex is an integrated garment manufacturer that is involved in original equipment manufacturing (OEM), original design manufacturing (ODM), original brand manufacturing (OBM) and retailing. The group has manufacturing facilities in Malaysia and China. |
