Merbok Hilir Berhad (“Merbok”) RM150 million BaIDS was placed on MARCWatch with a negative outlook on 30 August 2006 arising from Merbok’s failure to deposit the monthly built up for the upcoming scheduled principal payment in January 2007. However, the BaIDS holders have agreed with a restructuring scheme proposed by Merbok on 11 October 2006 which basically entails a deferment on the scheduled redemption of the primary bonds.

MARC has been informed that Merbok MDF Sdn Bhd and Merbok Adhesives Sdn Bhd, wholly owned subsidiaries of Merbok Hilir Berhad had on 27 September 2006 entered into two conditional sale and purchase agreements (Sale and Purchase Agreements) with Dongwha Holdings, a leading Korean-based woodpanel producer in relation to the disposal of certain Merbok’s assets (Proposed Disposal). The assets form part of the security of the BaIDS.

Proceeds from the Proposed Disposal will be used to settle the outstanding BaIDS while the balance will be utilised for the working capital of Merbok’s Sri Lanka operations.

Merbok is concurrently seeking the BaIDS holder’s approval to buy back the RM150 million BaIDS (Proposed Buy Back) as well as on the Proposed Disposal. The Proposed Buy Back is conditional upon acceptances of all BaIDS holders by 22 November 2006 in respect of their entire holdings and completion of the Sale and Purchase Agreements.  However if the Proposed Buy Back is not accepted by the BaIDS holders, Merbok will either request for a further extension from Dongwha Holdings or proceed with the proposed restructuring scheme. 

In addition, as announced in the Bursa Malaysia on 1 November 2006, Evergreen Fibreboard (JB) Sdn Bhd (EJB), a wholly owned subsidiary of Evergreen Fibreboard Bhd, had on 31 October 2006, entered into a sale and purchase agreement and a sale of assets agreement with Takeuchi MDF Sdn Bhd (TMDF), a wholly owned subsidiary of Merbok wherein EJB shall acquire the land and buildings and the plant, equipment, contracts and inventories of TMDF for a total purchase consideration of RM107 million to be wholly satisfied in cash.

Pending the outcome of the Proposed Disposal and the Proposed Buy Back, MARC will continue to monitor the developments affecting Merbok and disseminate any rating implications in due course.