MARC has affirmed its A-ID rating on Malaysian Merchant Marine Berhad’s (MMM) RM120 million Al Bai’ Bithaman Ajil Serial Bonds (BaIDS) following MMM’s recent announcement of its decision to undertake an early redemption of the remaining RM24 million outstanding BaIDS within this quarter, with proceeds from the contracted sale of a vessel. The rating was removed from MARCWatch Negative, where it had been placed in May 2008.

The stable outlook incorporates the prospect of limited downward rating movement stemming from MMM’s continuing cash flow deficit with the identification of a repayment source for the BaIDS.

The group’s revenue for the 9-month ended May 31, 2008 (3Q2008) stood at RM42.6 million, of which 80% was derived from two Contract of Affreightment for transportation of coal awarded by TNB Fuel Services Sdn Bhd.  Although its operating cash flows continued to be in deficit at RM12.1 million, MMM’s cash and bank balances remained strong at RM52.3 million as of 3Q2008 on account of earlier divestment of its subsidiaries and vessel disposals. MMM is now relying on vessel charter with an option to purchase at a later date as opposed to outright purchase. This allows the group to defer significant near-term capital spending and to conserve liquidity. Meanwhile its debt leverage improved significantly, registered at 1 time as of 3Q2008, which was primarily due to the RM26 million partial early redemption of the BaIDS in May 2008.

The rating of the BaIDS will be withdrawn upon confirmation from the Trustee on the full repayment and cancellation of the BaIDS facility.

August 6, 2008