MARC has placed the MARC-3ID rating on M-Trex Corporation Sdn Bhd (M-Trex)’s RM60.0 million Islamic Commercial Paper Programme (ICPs) on MARCWatch Negative upon completion of its annual review on M-Trex, due to a number of unresolved issues with the potential for continued uncertainty. The MARCWatch Negative reflects slow progress in resolution of covenant breaches relating to M-Trex’s use of ICPs proceeds to fund the acquisitions of M-Trex Active Carbon Sdn Bhd (MTC) and M-Trex Galvanised Steel Sdn Bhd (MGS), and uncertainty relating to the restructuring of M-Trex’s borrowings.

M-Trex had earlier adopted a plan to dispose of MTC and MGS to remedy the breach but has been unsuccessful in locating buyers. M-Trex is currently proposing a restructuring of the facility which is expected to be completed by end 2007. M-Trex’s management has represented that the company is at an advanced stage of restructuring the ICPs’s and remedying the breach. The company’s weak credit measures and strained interest coverage has left M-Trex vulnerable to unfavourable changes in its operating environment, liquidity profile and financial flexibility. Notwithstanding the proposed restructuring exercise, uncertainty exists in relation to the near-term actions of ICP holders who currently have the right to declare an Event of Default, and accordingly, declare the entire facility due and payable.

Events that could lead to affirmation of the MARC-3ID rating and assignment of a stable outlook include a successful resolution of the covenant breaches either by way of facility restructuring or ICPs holders agreeing to waive the breaches or the sale of MTC and MGS companies and restoration of debt service coverage measures to levels commensurate with a MARC-3ID rating. On the other hand, further negative rating action could result from failure to resolve the breaches, adverse deviations from or lack of progress in M-Trex’s restructuring plan and the absence of a meaningful improvement in cash flow measures. 

M-Trex is an investment holding company with interests in the manufacturing and sale of anodised surface treated panels for audio and video equipment, and the trading of replacement and consumable parts for the automobile and semi conductor industries.

MARC will closely monitor developments affecting M-Trex and will disseminate any rating implications arising therefrom accordingly.