MARC has placed its A- ID rating on Malaysian Merchant Marine Berhad’s (MMM) RM120 million Al Bai’ Bithaman Ajil Serial Bonds (BaIDS) on MARCWatch Negative. The MARCWatch placement is the result of its continued weak operating performance and an apparent change to MMM’s plans to fully redeem its BaIDS ahead of its November 2010 maturity. The rating action also reflects significant uncertainty as to MMM’s longer-term earnings and cash flow generating ability arising from the divestment of its subsidiaries and vessel disposals as well as the lack of clarity with respect to management’s strategic, operating and financial plans to stabilize MMM’s business and financial position.

Despite improved financial results for the six months ended February 29, 2008, the Group still recorded a pre-tax loss of RM8.0 million as compared to a pre-tax loss of RM15.4 million for the corresponding six-month period a year earlier. The improved results reflected RM17.5 million of gains on the divestment of its subsidiaries and vessel disposals. Following the disposal of two subsidiaries, MMM Ventures Ltd., and Aviva Pacific Marine Corporation, MMM’s shipping activities will be mostly limited to its petroleum and chemical tanker operations which currently derive stable earnings from spot charter contracts and two affreightment contracts with TNB Fuel Services.

In February 2008, MARC was informed of a request made by MMM to its bondholder with respect to an early redemption of the BaIDS. MMM had more than sufficient liquidity as of February 29, 2008 to meet the repayment of the RM50 million outstanding BaIDS from cash and bank balances of RM45.8 million and RM30 million held in designated accounts. However, MMM has not proceeded to redeem the BaIDS and has yet to communicate changes in its plans. MARC is concerned that the Group’s continued underperformance could result in an erosion of its liquidity position in light of the reported RM10.7 million operating cash flow deficit for the six months ended February 29, 2008.

The MARCWatch Negative will be resolved once MARC obtains further information from MMM’s management on its plans for the redemption of the BaIDS and upon completing MMM’s annual rating review.