MARC has assigned a rating of MARC-2 to Persoft Systems Sdn Bhd’s (“PSSB”) proposed issuance of Commercial Papers Programme (“CP Programme”) with a nominal value of up to RM50 million. The rating reflects PSSB as a Tier-1 managed licensing services provider for Microsoft Corporation’s (“Microsoft”) applications in Malaysia and has been a reseller of Microsoft for the past 16 years. PSSB has won Microsoft Malaysia’s Enterprise Group Partner award for the best Large Account Reseller (“LAR”) for seven consecutive years (from 1999-2005). For the year 2005, PSSB contributed significantly to Microsoft Malaysia’s software licensing revenue attributed to a diversified customer base comprising of 1,316 customers. These customers include multinational, public listed companies and government agencies. MARC perceives PSSB as a dominant player in the Microsoft software licensing sector. PSSB and its subsidiaries, namely, Paracation Sdn Bhd (“PCSB”), Paracation (MSC) Sdn Bhd (“PMSC”) and Pernet Sdn Bhd (“Pernet”), are part of the Persoft Group of Companies (“Persoft Group”) which has evolved to focus on key areas of managed licensing services and Information and Communication Technology (“ICT”) augmentation, namely IT Security Services, Software Research & Development and Outsourced Services.

The Group’s revenue trend has been increasing for the past four years averaging 19.6% growth. However, based on the Group’s FY2005 unaudited results, its revenue have decreased by 5.6% compared to FY2004 mainly attributed to the strategy to discontinue one of its non-Microsoft products due to product obsolescence. Revenue is derived mainly from managed licensing services, which contributed 96% to the Group’s total revenue whereby managed licensing services from Microsoft alone contributed approximately 88%. Its operating margin has dropped to 2.8% mainly due to lower operating profit and revenue which also led the pre-tax profit to move in the same direction.

It is anticipated that managed licensing services will continue to be the main contributor to the Group’s earnings and profits. However, going forward, based on the Group’s projections, contribution from managed licensing services is expected to decline as part of the Group’s strategy to diversify its business services and shift away from single product concentration risk. Emphasis will be made to services which provide higher margin such as IT security services and customised secure applications.

Its debt leverage level has risen to 0.30x due to an increase in short term borrowings by more than 100% as compared to a declining trend during the past four years. Based on its projections, the pro-forma debt-equity ratio is expected to be averaging at 1.09x and a maximum of 1.62x throughout the tenure of the RM50 million facility (2006-2013). However, it is still within the covenanted level of 2.0x as stated under the issue structure. To avoid breaching the covenanted level of 2.0x, the facility is expected to be drawn down in stages.

For FY2005, the Group’s cashflow position was strained due to lower operating cash flow, resulting from the negative changes in its working capital. The Group’s debt service coverage ratio (“DSCR”), as defined under the issue structure is negative, mainly due to investment in fixed assets and lower operating cash flow.

With the emergence of its new majority Bumiputra shareholder, Encik Rizzall Salleh, PSSB is aiming to further penetrate the government sector. Also, with the government’s on-going anti-piracy clamp down campaign, it would benefit them in the long term, as more companies and government agencies seek to use authorised Microsoft products by purchasing from authorised LAR such as PSSB.