MARC has placed its AID rating on PSSB Ship Management Sdn Bhd’s (“PSM”) RM40.0 million Bai Bithaman Ajil Islamic Securities (“BAIS”) on MARCWatch Negative on account of unresolved covenant breaches which include the failure to furnish the semi annual and annual audited accounts for the past two years and to adhere to the schedule of payments into the sinking fund as required under the trust deed. The MARCWatch placement incorporates the possibility that the rating could be lowered if requisite waivers are not obtained and liquidity continues to be constrained by a lengthy receivables collection period.

PSM is a special purpose funding vehicle established by PSSB Strategic Holdings Sdn Bhd to issue the BAIS. The Islamic securities will be repaid from 10 annual payments under a time charter of a vessel to the Government for the Royal Malaysian Navy’s training programme which was signed in 2001. MARC understands that PSSB is still awaiting payment amounting to RM8.8 million from the Government in respect of an invoice submitted on August 6, 2007. PSSB has submitted a request to the Government for rental fee adjustment citing escalating operating cost. Some comfort may be derived from the RM7.34 million in the Debt Service Reserve Account (DSRA) as of November 1, 2007, which is sufficient to service the principal and profit payments coming due in December.

MARC will monitor PSM’s progress in resolving its covenant breaches and will issue rating updates on material developments.