MARC has removed its rating of A- on Haisan Resources Berhad (HRB)’s RM12 million outstanding Bonds from MARCWatch Negative and affirmed the rating. Concurrently, it has assigned a negative outlook to the rating. The rating was first placed on MARCWatch Negative on August 20, 2008 following a breach of its debt-to-equity (DE) covenant, its weak first half year 2008 performance, and uncertainty surrounding the timing and the value of proceeds from proposed disposals of non-core assets pursuant to its regularisation plan.

The rating action follows approval by bondholders of a waiver of its DE covenant through the maturity date of the Bonds on June 21, 2010, and for partial redemption of the Bonds by utilising the sinking fund balance of RM18 million. HRB is also required to redeem at least RM3 million of the remaining outstanding Bonds of RM12 million every three months commencing September 2009 and before the maturity date. HRB had on November 28, 2008 utilised the sinking fund balance to redeem RM18 million of the RM30 million Bonds.

HRB, which is principally involved in the whole spectrum of the refrigeration and ice industry, has been negatively impacted by worsening domestic and regional economic conditions. For the nine months ended September 30, 2008, HRB recorded a net loss of RM2.4 million compared to a net profit of RM13.8 million in the previous corresponding period. The weak financial performance was largely due to lower income from its industrial refrigeration engineering division, losses on the disposals of non-core assets and increased operating expenses on the back of higher fuel cost and electricity expenditure during the period. Although HRB’s operating cash flow was RM23.6 million for the nine-month period, its liquidity position remained strained as reflected in cash and bank balances of only RM1.6 million vis-à-vis short-term borrowings of RM76.9 million including RM50.3 million of bank overdrafts.

The rating could be lowered if meaningful improvement in HRB’s liquidity and profitability is not achieved in the next few quarters.

Contacts:
Khairul Muzamel Perera, 03-2090 2247/ kevinkhairul@marc.com.my;
Elea Nor Zainal, 03-2090 2263/ elea@marc.com.my