Boon Koon Group Bhd’s (Boon Koon) MARC-2ID/A-ID ratings on its RM100 million Islamic Commercial Paper/Islamic Medium Term Notes (ICP/IMTN) programme remain on MARCWatch Negative where they had been first placed on February 25, 2009 in response to its breach of debt to equity ratio covenant.  The MARCWatch Negative status highlights Boon Koon’s weak liquidity position and strained financial flexibility in addition to its breach of its debt to equity ratio covenant under the rated notes.  To date, the bondholders have yet to give indulgence with respect to the financial covenant breach.

Since MARC last placed Boon Koon on MARCWatch in February 2009, the Group’s financial profile has exhibited further signs of financial deterioration.  Its results for the three-month period ended March 31, 2009 which was announced on May 27, 2009 revealed a 34.5% reduction in revenue, quarter-on-quarter.  Apart from weaker sales of commercial vehicles and forklifts, Boon Koon also incurred inventory write down of RM25.9 million, losses on disposal of spare parts of RM7.9 million and impairment in goodwill of RM2.8 million.  Reflecting its year-to-date pre-tax loss of RM62.1 million, its equity base had reduced to RM54.5 million as at March 31, 2009 from RM115.8 million as at December 31, 2007.  This led to a continuing breach of its debt to equity ratio which stood at 3.07x against its maximum gearing covenant of 1.5x based on its unaudited FY2008 results.

Boon Koon’s strained liquidity position is further exacerbated by its negative operational cashflow of RM5.3 million for the quarter ended March 31, 2009.  As such, Boon Koon is particularly vulnerable to the withdrawal of short-term credit facilities at this juncture as the majority of its RM109.1 million short-term debt as at March 31, 2009, comprised of trade lines and overdraft/revolving credit lines.  Liquidity resources, as represented by cash and bank balances including fixed deposits with banks, were limited at RM8.4 million.

MARC understands that Boon Koon is planning a capital reorganisation scheme which will involve its existing bondholders and bank lenders.  The capital reorganisation scheme, which will address Boon Koon’s financial covenant breach, is expected to be completed over the next several months. 

Boon Koon is a domestic commercial vehicle rebuilder with operations in Penang and Johor.  It has an annual production capacity of around 2,800 rebuilt vehicles. 

MARC will resolve the MARCWatch placement once greater clarity is obtained in relation to Boon Koon’s capital reorganisation scheme and the company’s ability to garner the requisite bankers support. 

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