Thursday, Jul 19, 2007
MARC has revised EP Manufacturing Berhad’s (“EPMB”) MARCWatch status, placing its short-term and long-term ratings of MARC-2ID and AID in respect of its RM150 million Murabahah Notes Issuance Facility (MUNIF)/Islamic Medium Term Notes (IMTN) and RM120 million MUNIF/IMTN respectively to MARCWatch Negative. The short term rating was originally placed on MARCWatch Developing in January 2007 as a result of the potential for increased refinancing risk stemming from Abrar Discount Berhad’s (Abrar) closure.
The current rating actions follow the release of EPMB’s unaudited first quarter results ended 31 March 2007 (1QFY07). The company recorded a pre-tax loss of RM6.6 million in 1QFY07, as compared to a pre-tax profit of RM3.9 million in the previous year’s corresponding period. EPMB’s operating results and cash flow measures have been negatively affected by the weak industry fundamentals and increasing costs of raw materials such as steel and resin. Its financial flexibility appears constrained given its current low cash balances and relatively high debt leverage of 1.3 times as at 31 March 2007, which is close to the MUNIF/IMTN issue structure covenanted level of 1.5 times. EPMB’s financial performance is unlikely to improve meaningfully over the near to medium term, given the uncertainties surrounding PROTON’s performance in particular as well as the local automotive industry in general.
In addition, the underwriting arrangement with respect to EPMB’s short-term underwritten facility has yet to be resolved. MARC has been in active discussion with EPMB’s management and expects to resolve MARCWatch placement shortly.
The current rating actions follow the release of EPMB’s unaudited first quarter results ended 31 March 2007 (1QFY07). The company recorded a pre-tax loss of RM6.6 million in 1QFY07, as compared to a pre-tax profit of RM3.9 million in the previous year’s corresponding period. EPMB’s operating results and cash flow measures have been negatively affected by the weak industry fundamentals and increasing costs of raw materials such as steel and resin. Its financial flexibility appears constrained given its current low cash balances and relatively high debt leverage of 1.3 times as at 31 March 2007, which is close to the MUNIF/IMTN issue structure covenanted level of 1.5 times. EPMB’s financial performance is unlikely to improve meaningfully over the near to medium term, given the uncertainties surrounding PROTON’s performance in particular as well as the local automotive industry in general.
In addition, the underwriting arrangement with respect to EPMB’s short-term underwritten facility has yet to be resolved. MARC has been in active discussion with EPMB’s management and expects to resolve MARCWatch placement shortly.