MARC has downgraded its long-term rating on Evermaster Group Berhad’s (“EGB” or “the Group”) RM50.0 million Al-Bai Bithaman Ajil Islamic Debt Securities (“BaIDS”) and RM40.0 million Murabahah Multi-Option Notes Issuance Facility (“MONIF”) to BBB-ID from BBB+ID. The lowered long-term rating and EGB’s MARC-3ID short-term rating remain on MARCWatch Negative where it was placed on July 1, 2008. The downgrade and MARCWatch placement reflects heightened refinancing risk and liquidity concerns following the Group’s failure to make the RM7.5 million sinking fund payment due June 30, 2008. The MARCWatch placement also incorporates the possibility of a multiple notch rating downgrade in the event EGB fails to comply with the sinking fund payments within the two months remedy period granted by Prokhas Sdn Bhd. MARC received confirmation from Prokhas Sdn Bhd, the sole BaIDS holder, that the balance in the finance service reserve account had been utilised to meet the profit payment on the BaIDS amounting to RM1,881,250 on its due date of June 30, 2008. Nevertheless, EGB’s ability to meet its immediate debt obligations was impacted by the dismal performance of its plywood manufacturing division which was reflected in its pre-tax loss of RM0.34 million for the quarter ended March 31, 2008. This has contributed to its weakened liquidity position which continues to be exacerbated by its large outstanding advances to timber suppliers. MARC believes that the foregoing will pose increased challenges to EGB’s proposed refinancing of the rated facilities.   

EGB’s first principal redemption of RM15.0 million on the BaIDS is due on December 30, 2008, of which RM7.5 million is required to be deposited into the sinking fund account six months, and the balance, three months prior to the redemption date. EGB has a period of two (2) months until August 31, 2008 to remedy the shortfall. MARC also understands from EGB that infusion of additional equity may be forthcoming with the entry of new shareholders although the timing of this remains uncertain.

EGB is principally involved in the manufacturing and trading of processed wood products, primarily plywood and moulded timber products. MARC will closely monitor EGB’s progress in resolving its immediate financial commitments and will issue rating updates on material developments.