MARC has removed the MARCWatch Negative placement on the rating of Press Metal Berhad’s (Press Metal) Redeemable Convertible Secured Loan Stock (RCSLS) and concurrently affirmed RCSLS’ rating at BBB with a negative outlook. The rating was placed on MARCWatch Negative on July 3, 2013 to enable the rating agency to assess the impact of the damage on Press Metal’s aluminium smelting plant in Mukah, Sarawak on the group following the power outage in the state on June 27, 2013.

MARC notes that the capacity loss at the 120,000 MT/pa Mukah plant as a result of the shutdown has been partly offset by the increasing capacity operations of Press Metal’s 320,000 MT/pa Samalaju plant in Bintulu. An additional 80,000 MT/pa to Samalaju plant’s initial capacity of 240,000 MT/pa has come onstream and has provided support to the group’s overall performance. For the three months ended September 30, 2013 (3QFY2013), Press Metal’s revenue held steady at RM794.5 million as compared to RM795.3 million in 2QFY2013, prior to the outage. Reconstruction work on the Mukah plant is in progress; partial operations commenced on November 18, 2013 with full capacity operations expected by end-February 2014.

While MARC understands that the insurance claim arising from the damage is yet to be finalised, reconstruction works on the Mukah plant has been partly facilitated by a US$25 million advance from Sumitomo Corporation (Sumitomo), which has a 20% stake in the plant. The rating agency notes that Sumitomo has also entered into agreement with Press Metal to purchase a 20% stake in the Samalaju plant for a cash consideration of US$140 million. Should the sale be completed by June 2014 as planned, MARC believes that the cash infusion will enable the group to pare down its sizeable debt, which stood at RM2.5 billion as at end-9MFY2013.   

MARC notes that with the completion of the group’s aluminium plant expansions, Press Metal recorded positive free cash flow of RM183.9 million (9MFY2012: negative RM698.0 million) and has cash and cash equivalents of RM240.2 million as at end-9MFY2013. Nonetheless, MARC remains concerned with the group’s tight working capital position as reflected by net current liabilities of RM667.9 million as at 9MFY2013 (FY2012: RM304.4 million). The negative outlook also incorporates the prevailing weak outlook on the aluminium industry as aluminium prices have remained subdued at around US$1,780/MT.

Contacts:
Ngiam Tee Wei, +603-2082 2268/ teewei@marc.com.my;
Taufiq Kamal, +603-2082 2251/ taufiq@marc.com.my;
Rajan Paramesran, +603-2083 2233/ rajan@marc.com.my.