MARC has downgraded its rating on Ingress Sukuk Berhad’s (ISB) RM160 million Sukuk Al Ijarah (Sukuk) to A-IS from AIS. ISB is a wholly-owned funding vehicle of Ingress Corporation Berhad (Ingress). The rating remains on MARCWatch Negative where it had first been placed on July 28, 2008. The downgrade incorporates the deteriorating liquidity position and declining profitability of Ingress and continuing existing non-compliance with certain financial covenants under the Sukuk. Its weak financial performance in the third quarter ending October 31, 2008 compared to the previous quarter, and anticipated continued weak earnings performance under current industry and economic conditions are likely to keep credit measures subpar for the present rating level for some time. The foregoing will significantly constrain Ingress’ capacity to remedy its financial covenant breaches.

As at October 31, 2008 Ingress’ liquidity, as indicated by unencumbered cash balances, had deteriorated to RM19.4 million from RM43.6 million in the preceding quarter. Its cash position net of its bank overdraft of RM22.8 million was RM3.4 million. Additionally, its third quarter earnings deteriorated with pre-tax profit declining 45.5% quarter-on-quarter to RM4.6 million despite revenue holding up at RM155.9 million (2Q2009: RM155.4 million), as a result of higher operating expenses.

The rating remains on MARCWatch Negative reflecting concerns on the impact of contracting demand for vehicles that could further delay Ingress’ return to profitability and result in insufficient cashflow generation.  ISB is required to deposit RM25 million into the Ijarah Service Rental Account (ISRA) by April 9, 2009. This represents the first of two payments to build up the ISRA for the Sukuk’s first scheduled redemption of RM50 million on July 9, 2009.

MARC acknowledges the Sukukholders’ right to accelerate repayment of the Sukuk, which if exercised, could result in payment default. The Sukukholders have yet to approve Ingress’ request for a further six-month extension until June 30, 2009 to complete its refinancing plan. MARC will continue to monitor Ingress’ progress on its negotiations with Sukukholders to address current breaches, and its proposed plan to fully refinance the outstanding Sukuk of RM145 million.

Contacts:
Hafizan Haron 03-2090 2238/ hafizan@marc.com.my
Nor Azlina Abdullah, 03-2090 2256/ norazlina@marc.com.my