MARC has downgraded PECD Berhad’s (PECD) RM200 million Serial Fixed Rate Bonds Programme’s rating from A- to BBB, to reflect a substantial deterioration in its credit profile. The downgrade follows PECD’s recent announcement of an unaudited pre tax loss of RM126.1 million for FY2006. The loss was attributed to among others, slower progress of ongoing projects, reversal of profits from certain completed projects due to cost overruns, non recognition of profits from the Sudan Marine Terminal project and its charge-off of previously capitalised interest costs due to the termination of construction contracts for the Government quarters, Precinct 11, Putrajaya. The downward rating revision would constitute an event of default (EOD) under the terms of the issue, in the absence of a waiver by bondholders.

MARC is currently conducting a rating review of the programme and will advise any further rating implications upon completion of the said review. The review will incorporate steps which management and new shareholders will take to resolve the EOD as well as the likely time frame to improve operating results and financial measures. MARC has revised PECD’s MARCWatch status to “Developing” from “Negative” following the announced entry of new strategic shareholders. The entrance of new shareholders and ongoing negotiations to resolve the impasses on some of its projects offer some prospects for restoring stability to their financial position.