MARC has upgraded the long-term ratings of Paradym Resources Industries Sdn Bhd (PRI) to AID (A Flat, Islamic Debt) from A-ID and affirmed the short term ratings at MARC-2ID for PRI’s Islamic Commercial Paper/Medium Term Note Issuance Programme (Islamic CP/MTN). The outlook is stable.  The ratings upgrade and reaffirmation reflect PRI’s strengthening financial profile arising from its acquisition of The Royal Mint of Malaysia Sdn Bhd (RMM) in March 2006, its 10 year contract with Bank Negara Malaysia (BNM) which not only allows the company a pass through of costs but also allows it to fund its purchases through BNM. Moderating the rating is the risk inherent in the company’s dependence on Metrod Berhad for its supply of copper cathode.

PRI is primarily engaged in the manufacturing and selling of copper rods, copper wire and copper strips particularly for the power and telecommunication industries. In 2003, PRI has entered into an agreement with RMM to supply and deliver Cupro-Nickel 25 (CuNi) strips to RMM for its blanking line for coins, on behalf of BNM. PRI simultaneously has also entered into an agreement with BNM to purchase the raw material for the RMM contract. RMM is obliged to take-up the entire contracted amount, thus substantially mitigating demand risk for the project. Since December 2004, PRI has started to procure raw materials and commenced the production of CuNi.  The project’s credit risk is mitigated given that the CuNi project’s payments will be made by BNM. The stable and predictable cash flow can substantially meet PRI’s obligations toward the CP/MTN.

The machinery acquired utilising the bond proceeds will enable PRI to produce approximately 40 different alloys which is expected to further enhance its bottom line going forward, while at the same time allowing it to reduce the concentration risk present from its current limited product range.

PRI has registered a commendable revenue CAGR of 67.9% since 2001. Its operating margin has rebounded to 13.7% due to better results on a consolidated basis. The earnings from operations are sufficient to cover its debt obligations as depicted by the 2.5 times OPBIT interest coverage. As of August, PRI has pared down its borrowings to 2.29 times, below the covenanted 2.50 times.

Under the issue structure, 10% of the proceeds from the CuNi projects would be captured under a designated account specifically earmarked for the redemption of the bonds. Additionally, an amount of RM1.5 million was pre-funded (utilising the bond proceeds) and is to be maintained at all times. These covenants serve to mitigate liquidity risk. Refinancing risk is also reduced by the serial redemptions of the Islamic CP/MTN.