Evermaster Group Berhad’s (“EGB” or “Group”) A- ID and MARC-2ID/A- ID ratings on its RM50.0 million Al-Bai Bithaman Ajil Islamic Debt Securities (BaIDS) and RM40.0 million Murabahah Multi-Option Notes Issuance Facility (MONIF) remain on MARCWatch Negative where they had been placed since July 13, 2007. The MARCWatch Negative reflects the Group’s working capital and cash flow pressures stemming from its consistently high receivables and significant near-term debt maturities. EGB is in the midst of securing bank borrowings to meet its first principal redemption of RM15.0 million in December 2008, of which half or RM7.5 million has to be deposited in the sinking fund account by June 2008. 

EGB is principally involved in the manufacturing and trading of processed wood products, primarily plywood and moulded timber products. The Group’s timber and timber related division contributed about 93.4% to total revenues in FY2007 whilst the balance was derived from construction activities. EGB does not own any timber concession but secures its supply of logs from log suppliers by making advance payments to the latter. Advance payments, as a proportion of annual total revenues, which has declined from a high of 46.8% in FY2005 to 26.5% in FY2007, continues to pressure its working capital.

Given that operating cash flow generation is weak relative to near term obligations, EGB’s near-term debt service ability will be heavily reliant on realising advance payments tied up with its log suppliers and/or injection of fresh capital – either equity or debt. EGB’s financial flexibility continues to be limited, reflected by its small unencumbered cash balances.

MARC expects to resolve the MARCWatch by end-February, by which time EGB is confident of obtaining the bank borrowings to refinance its near-to intermediate term debt maturities.