MARC has downgraded its rating on Malaysian Merchant Marine Bhd’s (MMM) RM120 million Al Bai’ Bithaman Ajil Islamic Debt Securities (BaIDS) to CID from BB+ID. Concurrently, the rating has been placed on MARCWatch Negative.

The rating actions reflect MARC's view that default appears imminent. MMM's recurring losses from operations, eroded capital base, and inability to generate sufficient cash flow to meet its obligations and sustain its operations raise substantial doubt about its ability to continue as a going concern. The recent forfeiture of its deposit on an aborted purchase of a vessel caused MMM’s consolidated shareholders’ equity to fall below 25% of its issued and paid-up capital, and is currently less than RM40 million. Apart from becoming an affected listed issuer pursuant to Bursa Malaysia Securities Berhad’s Practice Note 17 (PN17), MARC believes that the recent developments will likely result in an immediate demand for repayment on MMM's BaIDS and bank borrowings. Given the company's liquidity position, MARC does not expect MMM to be able to satisfy, in aggregate, the prepayments on the BaIDS and bank borrowings. Even in the absence of an acceleration of MMM's debt maturities, MARC believes that the company will be unable to meet its required Finance Service Reserve Account build-up payment in May 2010, which is equal to 50% of the outstanding BaIDS of RM24 million. The BaIDS mature in November 2010.

The directors of MMM had expressed doubt about the company's ability to continue as a going concern on March 5, 2010 and have more recently announced the completion of MMM's staff retrenchment exercise. Currently, the only revenue generating asset of the company is the MMM Ashton, a double hulled vessel which is currently deployed under a bareboat charter contract.  MMM Ashton is targeted for disposal by May 2010 in order to meet MMM's upcoming BaIDS commitment. The net realisable value of the vessel, initially estimated at around USD11 million, is likely to be significantly lower given the current weak tanker market. Management's revised estimate of net realisable value is now around USD5 million. The timing of the disposal also remains highly uncertain.

MMM’s principal activity is the provision of shipping services, ship management and ship chartering services.

MARC will continue to monitor the developments pertaining to MMM and take appropriate rating action.

Contacts:
Francis Xaviour Joe, 03-2090 2279 / fxjoe@marc.com.my;
Ryan Lee Ju Vern, 03-2090 2230 / juvern@marc.com.my