Monday, May 05, 2003
MARC has assigned an Islamic corporate debt rating of MARC-2ID (Islamic Debt) to PEPS-JV (M) Sdn Bhd’s (PEPS) RM40 million Murabahah Underwritten Notes Issuance Facility (MUNIF).
The rating reflects PEPS position as one of the tier-1 vendors for the national car manufacturers, Proton and Perodua, a tight underlying bond issue structure and moderate proforma debt leverage upon the finalization of the restructuring exercise involving a second board public listed company, EP Manufacturing Berhad (EPMB). The rating is, however, moderated by PEPS’ dependence on the national carmakers, in an intensely competitive motor vehicle market.
PEPS is a manufacturer of automotive products for the original and replacement markets. Its products are primarily supplied to national carmakers, Proton and Perodua, the top two players in the domestic motor vehicle industry (accounting for over 90% market share of new vehicle sales). Growth in revenue was particularly pronounced over the last three years, reaching RM90.5 million as at end March 2002; supported by contracts secured from Proton, set against the gradual improvement in the economic environment. PEPS recently secured new contracts from Proton for the manufacture of parts for several of the latter’s current and new models, that will drive revenue growth, going forward. Two additional assembly lines have been installed to cater for the new contracts. While operating profit has also been on an increasing trend, it is still somewhat exposed to fluctuations in the price of steel coils; a major raw material component.
The advent of AFTA in year 2005 will intensify competition within the domestic motor vehicle industry. And given its heavy reliance on the national carmakers, PEPS intends to expand its export market, which is currently limited to the US.
In February 2002, EPMB announced a proposal to acquire the entire stake in PEPS from Mutual Concept Sdn Bhd (MCSB) and 30 million redeemable convertible secured preference shares of RM1.00 each in PEPS. Upon the finalization of the proposal, the paid-up capital will be enlarged to RM50 million with a proforma debt leverage of 0.70 times (after taking into account the serial bonds facility of RM40 million). A debt-equity cap of 1.50 times has been imposed under the issue structure. The issuance of the proposed MUNIF issue is conditional upon finalization of the corporate restructuring exercise.
Proceeds from the MUNIF issue will be utilized to refinance PEPS’ existing debt obligations; significantly enhancing the company’s debt servicing capacity. Refinancing risk is mitigated under the MUNIF’s issue structure through the progressive reduction in the facility limit. By the end of the fourth year of the five-year programme, 75% of the facility limit would have been repaid. Funds are also required to be progressively built up in a sinking fund account, with 50% of the forthcoming redemption to be available one year before its maturity date. Liquidity risk under the issue structure is mitigated through the maintenance of twelve (12) months debt service cover of the MUNIF.
The rating reflects PEPS position as one of the tier-1 vendors for the national car manufacturers, Proton and Perodua, a tight underlying bond issue structure and moderate proforma debt leverage upon the finalization of the restructuring exercise involving a second board public listed company, EP Manufacturing Berhad (EPMB). The rating is, however, moderated by PEPS’ dependence on the national carmakers, in an intensely competitive motor vehicle market.
PEPS is a manufacturer of automotive products for the original and replacement markets. Its products are primarily supplied to national carmakers, Proton and Perodua, the top two players in the domestic motor vehicle industry (accounting for over 90% market share of new vehicle sales). Growth in revenue was particularly pronounced over the last three years, reaching RM90.5 million as at end March 2002; supported by contracts secured from Proton, set against the gradual improvement in the economic environment. PEPS recently secured new contracts from Proton for the manufacture of parts for several of the latter’s current and new models, that will drive revenue growth, going forward. Two additional assembly lines have been installed to cater for the new contracts. While operating profit has also been on an increasing trend, it is still somewhat exposed to fluctuations in the price of steel coils; a major raw material component.
The advent of AFTA in year 2005 will intensify competition within the domestic motor vehicle industry. And given its heavy reliance on the national carmakers, PEPS intends to expand its export market, which is currently limited to the US.
In February 2002, EPMB announced a proposal to acquire the entire stake in PEPS from Mutual Concept Sdn Bhd (MCSB) and 30 million redeemable convertible secured preference shares of RM1.00 each in PEPS. Upon the finalization of the proposal, the paid-up capital will be enlarged to RM50 million with a proforma debt leverage of 0.70 times (after taking into account the serial bonds facility of RM40 million). A debt-equity cap of 1.50 times has been imposed under the issue structure. The issuance of the proposed MUNIF issue is conditional upon finalization of the corporate restructuring exercise.
Proceeds from the MUNIF issue will be utilized to refinance PEPS’ existing debt obligations; significantly enhancing the company’s debt servicing capacity. Refinancing risk is mitigated under the MUNIF’s issue structure through the progressive reduction in the facility limit. By the end of the fourth year of the five-year programme, 75% of the facility limit would have been repaid. Funds are also required to be progressively built up in a sinking fund account, with 50% of the forthcoming redemption to be available one year before its maturity date. Liquidity risk under the issue structure is mitigated through the maintenance of twelve (12) months debt service cover of the MUNIF.