MARC, with immediate effect, is placing Merbok Hilir Berhad (“Merbok”) RM150 million Bai’ Bithaman Ajil Islamic Debt Securities (“BaIDS”) on MARCWatch with a Negative Outlook. This is premised on Merbok’s failure (in accordance with the Terms and Conditions of the BaIDS) to deposit the monthly built up for the upcoming principal payment due in January 2007. Merbok is currently in the midst of negotiating to restructure some of the terms of the BaIDS. Nevertheless, MARC was made to understand that Merbok’s operational cashflows are sufficient to meet the BaIDS’ required profit payments.

The deterioration of Merbok’s financial position can be attributed to various operational issues that had adversely affected its operations in Sri Lanka, Kedah and Johor; effectively causing substantial underutilisation of its manufacturing capacity. However, at this juncture, MARC is unable to ascertain the full impact of the temporary operational glitches on Merbok’s budgeted revenue and profit for FY2006 and future projections.

As such, MARC will continue to monitor the developments affecting Merbok and disseminate any rating implications in due course.