Monday, Dec 05, 2005
MARC has affirmed the ratings of CNLT (Far East) Berhad’s (CNLT) RM60 million Bank Guaranteed CP/MTN at A(bg)/ MARC-1(bg). This reflects the weakest link rating within the unconditional and irrevocable bank guarantees provided by a consortium of financial institutions. The bank guarantors consist of Aseambankers, Malayan Banking Berhad, Bumiputra Commerce Bank Berhad and EON Bank Berhad.
CNLT is a medium-sized manufacturer of yarn based in Senawang Industrial Estate in Seremban. Year 2004 remained challenging as sales from the US market declined further due to intensifying competition after the abolishment of quotas and restrictions under the Multi-Fibre Agreement (MFA). Cheaper textile imports from China, India and Pakistan resulted in US customers outsourcing finished goods instead of manufacturing such goods themselves.
With the changing landscape of the textile industry, CNLT saw the composition of sales reversing to a larger contribution from the local market (74.0%) as compared to FY2003 (35.0%). Despite lower contributions from export sales, the US continued to be its largest foreign market (18.0%) followed by Europe (6.0%) and Africa (1.0%).
Reduced demand from CNLT’s US based customers led to a contraction in revenue of 38.8% in FY2004. Although contributions from local sales had improved, it was insufficient to offset the fall in export sales. As a result, operating margins continued to suffer during the year.
Debt leverage increased in FY2004 attributable to the operating losses and its effect on the erosion of reserves. Under the issue structure, however, the definition of equity includes shareholders advances. As such for FY2004, adjusted debt leverage stood at 1.4x; within the covenanted level of 1.5x.
The company recently moved downstream; to manufacture textiles and apparel in Senegal. The new operations in Senegal are currently in the start-up stage and expected to contribute towards the group by second half of fiscal year 2006. In the near-to-medium term, MARC believes that CNLT’s operating environment will remain difficult due to sluggish demand from its US based customers and other operational factors.
CNLT is a medium-sized manufacturer of yarn based in Senawang Industrial Estate in Seremban. Year 2004 remained challenging as sales from the US market declined further due to intensifying competition after the abolishment of quotas and restrictions under the Multi-Fibre Agreement (MFA). Cheaper textile imports from China, India and Pakistan resulted in US customers outsourcing finished goods instead of manufacturing such goods themselves.
With the changing landscape of the textile industry, CNLT saw the composition of sales reversing to a larger contribution from the local market (74.0%) as compared to FY2003 (35.0%). Despite lower contributions from export sales, the US continued to be its largest foreign market (18.0%) followed by Europe (6.0%) and Africa (1.0%).
Reduced demand from CNLT’s US based customers led to a contraction in revenue of 38.8% in FY2004. Although contributions from local sales had improved, it was insufficient to offset the fall in export sales. As a result, operating margins continued to suffer during the year.
Debt leverage increased in FY2004 attributable to the operating losses and its effect on the erosion of reserves. Under the issue structure, however, the definition of equity includes shareholders advances. As such for FY2004, adjusted debt leverage stood at 1.4x; within the covenanted level of 1.5x.
The company recently moved downstream; to manufacture textiles and apparel in Senegal. The new operations in Senegal are currently in the start-up stage and expected to contribute towards the group by second half of fiscal year 2006. In the near-to-medium term, MARC believes that CNLT’s operating environment will remain difficult due to sluggish demand from its US based customers and other operational factors.