The ratings of Intelbest Corporation Sdn Bhd’s (“ICSB”) RM110.0 million Bai Bithaman Ajil Bonds (“BaIDS”) and RM50.0 million Murabahah Notes Issuance Facility (“MUNIF”) have been downgraded with a Developing Outlook as follows:

Facility
MUNIF
Series 1 BaIDS
Series 2 BaIDS
Series 3 BaIDS

Amount
RM50.0 million
RM20.0 million
RM35.0 million
RM55.0 million

Previous Rating
MARC-1 ID
A+ID
AID
AID

Current Rating
MARC-3 ID
BBB+ID
BBBID
BBBID

The rating actions follow the construction delays faced by the Saujana Putra, Ukay Bistari and Lestari Perdana developments which form the main source of repayment under the BaIDS and MUNIF facilities. The delays are due to the vulnerability of the projects to the non-performance by its previous contractors; transition period in handing over the site by the previous contractors to the new contractors; delay in the levelling of the platform for its hilly development; and costs escalation. The downgrades also address the uncertainty over the group’s operating cash flows due to the construction delays which affected ICSB’s progress billings.

ICSB has four projects located in Selangor, namely, Ukay Bistari (two parcels), Saujana Putra and Lestari Perdana. As at 10 February 2006, ICSB’s unlaunched properties’ estimated remaining GDV was RM319.4 million; which is expected to be sufficient to sustain its future earnings. As at the same date, total GDV sold stood at RM451.2 million (June 2004: RM449.9) against total GDV of RM770.6 million. Total billings as at 10 February 2006 amounted to RM173.9 million (June 2004: RM59.3 million) whilst total collections stood at RM168.9 million (June 2004: RM54.4 million); indicating that construction activities are still progressing under the developments. With the recent appointment of new contractors, works have been accelerated to recover from the earlier delays.

This review was conducted without the benefit of the audited financial accounts for FYE March 2005. Notwithstanding that, ICSB had successfully met the Redemption Account (RA) requirement under the MUNIF of RM15.0 million (RM20.0 million less unutilized amount of RM5.0 million which has been cancelled) one month prior to the redemption date on 29 March 2006, as required under the issue structure. The aforesaid amount has since been redeemed on maturity date, as confirmed by the facility agent, Abrar Discounts Berhad.

With the redemption of the RM20.0 million MUNIF in March 2006, the security coverage ratio is expected to reach 2.0 times, just meeting the minimum required level under the issue structure. The redemption of the Series 1 BaIDS of RM20.0 million and the balance MUNIF of RM30.0 million will be due in February and March 2007 respectively. ICSB had indicated that the redemption sum payable from its developments for the 12 months up to 1Q2007 including estimated funds receivable from billings in respect of vacant possession for certain phases under the Ukay Bistari development is expected to reach RM61.2 million, sufficient to meet the redemptions due in FY2007.

The projected cashflow, however, is subject to the completion of the platform for the hilly area, timing on collection of progress billings and vacant possession and escalation in construction costs. MARC believes that any further instances of construction delays and slower progress billings may affect the group’s financial performance. MARC will continue to monitor the progress of ICSB’s developments, and assess their impact, if any, on the latter’s ratings.