MARC continues to maintain its MARC-2ID/AID ratings on Emas Kiara Industries Berhad's (EKIB) RM80 million Partially Underwritten Murabahah Notes Issuance Facility/Islamic Medium Term Notes Issuance Facility (MUNIF/IMTN) on MARCWatch Developing. The ratings have been placed on MARCWatch Developing since November 16, 2010 following EKIB's announcement that it will divest its core geosynthetic manufacturing business to Tencate Geosynthetics Asia Sdn Bhd, a subsidiary of Netherlands-based Royal Ten Cate N.V. The divestment is expected to generate cash proceeds of RM100.0 million that will be used to repay the RM50.0 million outstanding under the rated facilities as well as EKIB’s existing bank loans.

EKIB’s revenue and pre-tax profit for the three months ended September 30, 2010 were 36.2% and 51.1% lower respectively compared to the preceding quarter. However, the cumulative results for the first nine months of 2010 (9M2010) exhibited relative stability, with pre-tax profit increasing slightly to RM7.3 million from RM7.2 million on the back of an almost 80% increase in revenue. EKIB’s lower product margins and continuing high level of receivables to sales impeded cash flow generation in 9M2010. Despite reporting an operating cash flow deficit of RM7.6 million, EKIB’s liquidity profile showed modest deterioration from a year ago, with cash and cash equivalents of RM14.7 million against RM65.0 million short-term borrowings (September 30, 2009: RM17.4 million and RM63.3 million, respectively).

MARC has been informed that the conditions precedent for completion of the transaction have been met except for the approval from EKIB’s shareholders. The ratings will remain on MARCWatch pending the completion of the transaction which is targeted to take place by end-March 2011.

Contacts:
Janey Chock, +603-2082 2264 / janey@marc.com.my;
Rajan Paramesran, +603-2082 2233 / rajan@marc.com.my.