MARC has affirmed its A- rating of Bintang Bulk Movers Sdn Bhd (BBM) with respect to its RM50 million bonds. The final RM20 million tranche of the bonds is due to be redeemed in April 2009. BBM’s rating outlook is revised to negative, from stable, to reflect slower-than-expected buildup in the facility’s sinking fund account (SFA) vis-à-vis RM20 million redemption of its final tranche of bonds due on April 1, 2009. MARC is also concerned over the group’s liquidity position particularly with its heavy reliance on short-term debt funding. The affirmed rating continues to reflect BBM’s leading domestic market position in bulk cement transportation, underpinned by its established relationship with Lafarge Malayan Cement Berhad (Lafarge) and moderated by expected thinner operating profit margins and lower volume from its container haulage division, regulated by fixed container haulage rates.

The issue structure for the serial bonds provides for the assignment of 20% of BBM’s revenue from identified transportation contracts with Lafarge and 10% of other BBM revenue towards meeting the debt service obligations under the bonds. The assigned revenues are deposited into a trustee-controlled SFA. Lower-than-expected revenue has resulted in the SFA account balance of RM12.7 million as at February 11, 2009, falling below the RM20 million required three months prior to the maturity dates of the bonds. However, MARC understands the sole bondholder, Alliance Merchant Bank Bhd, has given indulgence to waive the build up of the sinking fund. MARC expects the shortfall of RM7.3 million to be obtained from undrawn credit lines or shareholder capital injection.

As at December 2008, BBM’s cement, container and other logistics businesses operate a fleet of 401 cement tankers, 326 container prime-movers and 1270 container trailers. The group is the largest player in domestic cement transportation and ranks fourth in the container haulage business. BBM’s dominant market position in bulk cement transportation is underpinned by a long relationship with its main client, Lafarge, the largest cement and concrete producer in the country. In spite of price adjustments and additional fuel & toll surcharges approved by the government, time-lag in passing on diesel price increases and inflation in non-fuel operating costs have resulted in rising costs and margin pressure for container haulage players. Furthermore, container volume is expected to fall, in line with lower external trade volume which dropped to RM80.5 billion in December 2008 as reported by MITI, compared to its peak of 112.2 billion in July 2008. Port Klang Authority projects the volume for TEU containers to fall by 10.8% in 2009.

For the year ended February 28, 2008 (FY2008), revenue contribution from BBM’s two core divisions accounted for 48.9% and 38.9% of revenue respectively, and total revenue increase to RM154.9 million (FY2007: RM146.2 million) on account of new coal, clinker and pulverized fuel ash transportation contracts. Operating margins, however, decreased to 8.22% (FY2007: 8.85%), on account of losses from its container haulage division. Net cashflow from operations for FY2008 improved to RM33.4 million (FY2007: 25.0 million) as matching between days receivables and days payables improved to ease working capital requirements.

BBM’s inability to secure long-term financing to meet its immediate debt, working capital and capital expenditure requirements is reflected in its predominantly short-term debt maturity profile. BBM’s available unutilised non-trade credit lines on January 31, 2009 amounted to RM2.4 million. MARC understands BBM is in the midst of procuring refinancing for the bonds. Some measure of financial flexibility is provided by the company’s unencumbered assets of land in Rawang estimated to be worth RM20 million and more than 240 of its cement tankers.

The negative outlook highlights possible downward rating action if the company makes insufficient progress in obtaining refinancing for its outstanding bonds.

Contacts:
Hafizan Haron 03-2090 2238/ hafizan@marc.com.my;
Lee Mei Lin 03-2090 2259/ meilin@marc.com.my; Eric Chua, 03-2090 2245/ cheekiong@marc.com.my.