Antara Steel’s RM300mil sukuk rated AAAIS (fg)

PETALING JAYA: Malaysian Rating Corp Bhd (MARC) has assigned a rating of AAAIS (fg) to Antara Steel Mills Sdn Bhd’s RM300mil sukuk mudharabah programme.

The ratings agency said Antara’s standalone credit profile had improved marginally in the nine-month period ended March 31 (9MFY17), against a higher capacity utilisation rate at its hot briquetted iron operations in Labuan, in line with higher steel prices.

“The affirmed rating and outlook are based on the unconditional and irrevocable financial guarantee insurance provided by Danajamin Nasional Berhad (Danajamin) on which MARC has an insurer financial strength rating of AAA/stable and long-term counterparty credit rating of AAA/stable,” Marc said in a statement.

The house noted that Antara’s Labuan plant’s capacity utilisation rate saw a 74.3% hike in 9MFY2017, from 42% in 9MFY16.

However, its Pasir Gudang plant’s performance remained weak since the shutdown of its billet-producing facility in December 2015, while its bar-producing facility registered a low utilisation rate of 11.9%, partly caused by obstacles faced in sourcing billets in the open market. Notwithstanding the recent upward trend in steel prices had prompted Antara to start producing billets that would concurrently aid the production of steel bars, MARC conceded.

For the unaudited 9MFY17, Antara’s revenue rose 5.3% year-on-year to RM493.6mil and a profit after tax of RM43.5mil after three consecutive years of losses since FY14.

Apart from overall positive contributions from its Labuan plant, profitability was supported by a one-off receipt of insurance claims from an accident at the jetty in Labuan in 2013 and from the sale of by-products.

“In the near term, MARC expects better operating performance when the billet facility resumes operations, although profitability is expected to be lower in the absence of a one-off income,” the house noted, adding that receivables from Megasteel Sdn Bhd and Lion DRI Sdn Bhd were fully impaired in FY16.

In terms of cash flow, MARC said cash flow from operations as well as cash flow coverage ratios improved over the nine-month period.

“Working capital is largely managed through cash-collateralised trade facilities for bank guarantees and bankers’ acceptance as well as letters of credit issued in favour of third parties.

“Although this restricts Antara’s use of its cash, MARC considers this arrangement as facilitating the cash conversion cycle and that the company’s liquidity is manageable,” it added. Antara’s cash reserves as at end9MFY17 stood at RM116.9mil, of which about RM65.4mil was applied to repay the instalment under the rated sukuk on June 28, 2017.

The final sukuk instalment of RM60mil is due on June 28, 2018.