MARC has downgraded Tracoma Holdings Berhad’s (Tracoma or the company) RM100 million Al Bai’ Bithaman Ajil Islamic Debt Securities (BaIDS) long-term rating to BB+ID from BBB+ID. The rating remains on MARCWatch Negative. The downgrade reflects the company’s tight liquidity position and limited financial flexibility, exacerbated by weaker-than-expected cash flow generation as indicated by Tracoma’s failure to make a scheduled RM5 million payment into the principal service reserve account (PSRA) on July 28, 2008 in accordance with the revised schedule of build-up payments. The BaIDSholders had recently approved Tracoma’s earlier request to vary the six scheduled monthly payments to build up the PSRA to redeem the first series of the BaIDS amounting to RM50 million maturing on January 28, 2009. The first three deposits will now amount to RM5 million each, followed by two RM10 million deposits and a final RM15 million deposit in place of the original RM25 million scheduled payment on July 28, 2008, followed by five monthly payments of RM5 million each.

The rating remains on MARCWatch Negative to highlight the possibility that it could be lowered further in the near-term in the absence of improvement to Tracoma’s financial profile, and/or failure to preserve adequate liquidity. MARC will continue to monitor measures and initiatives taken by Tracoma to cope with its current challenges before taking further rating action.