MARC has placed the MARC-2/A ratings of Axis Incorporation Berhad’s (Axis) RM100.0 million Commercial Papers / Medium Term Notes Programme (CP/MTN) on MARCWatch Negative. The MARCWatch placement reflects a breach of the gearing covenant on the part of Axis as at end-March 2007 which remains unresolved.

Axis is involved in the garment and textile industry, with businesses in knitting and dyeing of fabrics; garment manufacturing; and the trading of yarn and fabrics. It has knit and dye operations in Johor; OEM (original equipment manufacturing) contract manufacturing partnerships with manufacturers in Vietnam and Cambodia; and a trading arm based in Singapore.

Axis’ rising debt levels precipitated a breach of the debt to equity covenant under the CP/MTN issuance as at end-March 2007. Horwath, Axis’ auditors, had on 28 September 2007 confirmed that the covenant had been violated based on Axis’ computed debt to equity ratio of 1.65 times as at end-March 2007 against the covenanted debt to equity cap of 1.50 times. Axis has not resolved the breach nor has it obtained waivers from bondholders for the covenant violation.

MARC is also concerned with Axis inability as at todate to provide satisfactory information for MARC to complete its first annual surveillance review. This leads MARC to believe that there may be further downside risk in respect of the ratings. The resolution of the MARCWatch placement will depend, amongst others, on satisfactory remedy of the covenant breach on the part of Axis as well as the outcome of MARC’s annual review.