MARC has downgraded the long and short-term ratings of wood-based product manufacturer Evermaster Group Berhad’s (EGB) RM50 million Al-Bai Bithaman Ajil Islamic Debt Securities (BaIDS) and RM40 million Murabahah Multi-Option Notes Issuance Facility (MONIF) to BB-ID and MARC-4ID from BBB-ID and MARC-3ID respectively. At the same time, EGB’s ratings were removed from MARCWatch Negative where it had been placed since July 2, 2008 highlighting concerns over EGB’s ability to meet its scheduled sinking fund requirements under its BaIDS. The ratings now carry a negative outlook.

The downgrades reflect heightened risk of near-term default with respect to EGB’s ability to meet the BaIDS redemption of RM15 million due on December 30, 2008. The sole BaIDS holder, Prokhas Sdn Bhd, a wholly-owned subsidiary of Ministry of Finance, had earlier given an indulgence to EGB to defer its sinking fund requirement, and agreed to a proposal to restructure the BaIDS repayment schedule. To date, the restructuring has not been finalised and EGB has been unsuccessful in its efforts to refinance its BaIDS and MONIF. It continues to suffer from nominal liquidity, including no bank borrowing capacity and very tight gearing covenant headroom. EGB’s financial position continued to deteriorate with reported pre-tax losses of RM4.8 million for the six months ended September 30, 2008, and negative net cash flow from operations of RM73,000 on the back of weak operating performance of its plywood and moulded timber products business. EGB’s operating losses have eroded its capital base, leaving the group with no headroom for additional borrowing against its covenanted debt to equity level of 1.25 times. Available liquidity is limited, evidenced by its small cash balance of RM1.2 million as of September 30, 2008. 

The negative outlook incorporates the poor prospects for refinancing EGB’s borrowings ahead of the upcoming maturity of the first of its BaIDS. If no positive changes occur in the near term, this will likely result in the further downgrade of EGB’s ratings.

Contacts:
Hafizan Haron, 03-2090 2238/ hafizan@marc.com.my;
Amy Teoh, 03-2090 2259/ amy@marc.com.my