MARC has reaffirmed the rating for Mithril Berhad’s (Mithril) RM59 million Redeemable Convertible Secured Loan Stock (RCSLS) at BBB and has lifted its MARCWatch with a Negative Outlook. The reaffirmation reflects the better results led by the company’s architectural mouldings manufacturing arm coupled with stable rental income from its investment properties. The rating is, however, moderated by the shutdown of its brick manufacturing operations early this year and rising raw material prices. Mithril’s rating was put on MARCWatch with a Negative Outlook on 17 April 2006 due to a delay in the receipt of relevant information for its annual surveillance review for 2005. Upon fulfilling the information requirement and completing the review, MARC has lifted the rating watch on the company. 

Mithril’s current business activities comprise the manufacturing and trading of architectural mouldings under Mithril Saferay Sdn Bhd (Saferay); rental income from property investments; and the manufacturing, distribution and selling of bricks under Tajo Berhad (Tajo). In January 2006, the brick operations were halted due to a fire outbreak. The plant is currently under rehabilitation and is expected to commence full operation in September 2006. Under a conditional sale and purchase agreement between Mithril and Saferay’s vendors, the latter had provided a profit guarantee that the aggregate post-tax profit of Saferay shall not be less than RM18 million for the period 30 April 2003 – 30 April 2005. Saferay however failed to achieve the projected profits and the purchase consideration for the purchase has been adjusted for the shortfall via a cancellation of redeemable convertible unsecured loan stocks (RCULS). Mithril’s new ventures include the manufacture and distribution of polyvinyl chloride (PVC) products which is expected to commence operations in the second half of 2007 and its entry into the luxury yacht building industry which started operations in early 2006.

The leasing of commercial properties involves the leasing of two commercial buildings in Kota Kinabalu and Kuching to Malaysian Assurance Alliance Berhad (MAA) which provides a stable income stream to Mithril.   Proceeds from the RCSLS issue and an irredeemable convertible unsecured loan stocks (ICULS) issue were utilized to purchase the two buildings. The RCSLS holders will have the option to convert their loan stocks into Mithril’s ordinary shares from the beginning of the second year to the end of the eighth year.

Mithril in its third quarter 2006 results ended 31 March 2006 posted a lower pre-tax loss of RM0.35 million against a pre-tax loss of RM6.12 million in FY2005.   The improved performance is attributable to the higher turnover from Saferay and lower losses from Tajo. The DSCR stood at 0.28 times in FY2005 and going forward Mithril has projected a minimum and average DSCR of 1.88 and 5.81 times respectively based on higher projected revenues from Saferay which commands a better operating margin (est: 10%). The debt equity ratio as at 31 March 2006 was 1.21 times, well below the covenanted level of 1.50 times.