MARC continues to maintain its rating on Malaysian International Tuna Port Sdn Bhd’s (MITP) RM240.0 million Bai’ Bithaman Ajil Islamic Securities (BAIS) of A+ID on MARCWatch Negative, where it had first been placed since February 19, 2009. The continued MARCWatch Negative placement highlights the urgency of restoring MITP’s depleted sinking fund ahead of its upcoming profit payment on the BAIS on November 17, 2009. The execution risk posed by current restructuring initiatives which are designed to restore some measure of financial health remains a significant rating concern.

While past profit payment on the BAIS was satisfied by transfer of funds to the sinking fund account from finance income earned on designated accounts, the depleted sinking fund suggests that MITP can no longer rely on its sinking fund to meet scheduled debt payments. For its RM10 million profit payment due on November 17, 2009, MITP is required to place the corresponding scheduled funding payment by October 17, 2009 which will now have to come from additional equity capital provided by MITP’s shareholders.

Since MARC’s last rating update on May 7, 2009, MITP has made significant progress in bringing in a government-related entity (GRE) as a new shareholder. MARC has been informed by MITP that the GRE has obtained its board’s approval for a 40%-equity stake in MITP and is now awaiting the approvals from relevant ministries to complete the transaction. The acquisition, to be met through new issuance of MITP shares, is expected to raise RM32 million that would be sufficient to alleviate its immediate liquidity constraints. Apart from equity investment, the GRE is supportive of MITP’s decision to refinance the entire outstanding BAIS by way of new bank borrowings.

MARC views this development positively but remains concerned as to the timeline for completion of the deal as MITP has effectively less than three months to make the payment into the sinking fund. Should the GRE’s acquisition in MITP be completed before the due date, the proceeds of the new equity issuance could be utilised to pay the impending profit payment as well as provide MITP with breathing space to complete its restructuring.

MARC, in its previous rating announcements, had highlighted a notice of breach by the trustee to MITP for failing to provide information on its plan to remedy a shortfall in its Finance Service Reserve Account 2 (FSRA), among others. MARC had also highlighted MITP’s commitment to make full redemption of BAIS before the next profit payment on November 17, 2009. Bondholders’ approval is currently being sought on whether to waive the notice of breach, to give indulgence or to declare an event of default.

The rating could be lowered if MITP’s BAISholders elect to declare an event of default and exercise their rights to accelerate the BAIS or if the GRE’s investment in MITP fails to materialise, resulting in heightened refinancing risk. MARC will continue to monitor the situation for further developments and expects to resolve the MARCWatch status in the next 60 days.

Contacts:
Sandeep Bhattacharya 03-2090 2247/ sandeep@marc.com.my;
Khairul Emran Mahmud 03-2090 2278/ emran@marc.com.my;