Friday, Jul 25, 2008
MARC has placed its BBB+ID rating (negative outlook) on Tracoma Holdings Berhad’s (“Tracoma” or “the Group”) RM100 million Al Bai’ Bithaman Ajil Islamic Debt Securities (BaIDS) on MARCWatch Negative. The MARCWatch Negative placement reflects heightened concerns about Tracoma’s ability to make a RM25 million scheduled payment into the principal service reserve account (PSRA) on July 28, 2008, which represents the first of six scheduled monthly payments to build up the PSRA for the redemption of the first series of the BaIDS amounting to RM50 million maturing on January 28, 2009. Thereafter, Tracoma is required to make five monthly payments of RM5 million each. MARC understands that Tracoma has sought indulgence from the BaIDSholders to vary the scheduled build-up of the PSRA given the slower than expected recovery in its financial performance. Although Tracoma had earlier raised proceeds of RM35.1 million from the disposal of its associate company, this has been mainly utilised to repay and reduce other bank borrowings. MARC believes that further divestment of assets, if any, is unlikely to generate sufficient proceeds to meet the PSRA build-up in compliance with the original schedule of payments. The rating action also incorporates the possibility of a rating downgrade in the event that indulgence is not granted by the BaIDSholders and Tracoma fails to meet its July 28 PSRA obligation.
Tracoma Holdings Berhad is principally an investment holding company with subsidiaries involved in manufacturing automotive parts and components. Its main subsidiaries, Tracoma Sdn Bhd, Profen Sdn Bhd, and Destar Indah Sdn Bhd are Tier-One vendors to PROTON and PERODUA. More than 50% of the Group’s total annual sales is derived from supplying auto components to PROTON.
For the three-month period up to March 31, 2008, Tracoma’s revenue of RM33.8 million was 46.6% higher than the previous year corresponding period on account of higher sales volume, particularly for PROTON Persona and Saga. Tracoma’s profitability improved driven by higher revenue and cost savings arising from its leaner operations, as reflected in the Group’s operating margin of 15.6% and profit before tax of RM2.3 million as compared to a loss before tax of RM0.9 million a year earlier. The Group recorded a negative net CFO of RM2.1 million in the 1QFY2008 owing to increased working capital requirements arising from its higher sales volume. Tracoma’s debt-to-equity ratio of 1.6 times as at March 31, 2008 vis-a-vis the BaIDS’ covenanted limit of 2.0 times. Tracoma possesses limited financial flexibility, as indicated by its relatively high debt leverage and low cash balance of RM2.9 million as at March 31, 2008.
Despite its improved profitability, MARC believes that the Group still faces significant challenges with slower auto demand anticipated going forward and given its current tight liquidity position. MARC will continue to monitor the progress of Tracoma’s negotiations with its BaIDSholders and the outcome of the upcoming meeting that it intends to hold with the BaIDSholders shortly.
Tracoma Holdings Berhad is principally an investment holding company with subsidiaries involved in manufacturing automotive parts and components. Its main subsidiaries, Tracoma Sdn Bhd, Profen Sdn Bhd, and Destar Indah Sdn Bhd are Tier-One vendors to PROTON and PERODUA. More than 50% of the Group’s total annual sales is derived from supplying auto components to PROTON.
For the three-month period up to March 31, 2008, Tracoma’s revenue of RM33.8 million was 46.6% higher than the previous year corresponding period on account of higher sales volume, particularly for PROTON Persona and Saga. Tracoma’s profitability improved driven by higher revenue and cost savings arising from its leaner operations, as reflected in the Group’s operating margin of 15.6% and profit before tax of RM2.3 million as compared to a loss before tax of RM0.9 million a year earlier. The Group recorded a negative net CFO of RM2.1 million in the 1QFY2008 owing to increased working capital requirements arising from its higher sales volume. Tracoma’s debt-to-equity ratio of 1.6 times as at March 31, 2008 vis-a-vis the BaIDS’ covenanted limit of 2.0 times. Tracoma possesses limited financial flexibility, as indicated by its relatively high debt leverage and low cash balance of RM2.9 million as at March 31, 2008.
Despite its improved profitability, MARC believes that the Group still faces significant challenges with slower auto demand anticipated going forward and given its current tight liquidity position. MARC will continue to monitor the progress of Tracoma’s negotiations with its BaIDSholders and the outcome of the upcoming meeting that it intends to hold with the BaIDSholders shortly.