MARC af­firms An­tara Steel sukuk at ‘AAA’

The Sun (Malaysia) - - SUNBIZ -

PETALING JAYA: Malaysian Rat­ing Corp Bhd (MARC) has af­firmed its “AAA” rat­ing on An­tara Steel Mills Sdn Bhd’s (An­tara), a mem­ber of the Lion Group, RM300 mil­lion Sukuk Mud­harabah pro­gramme with a sta­ble out­look.

In a state­ment last Fri­day, MARC said the af­firmed rat­ing and out­look are un­der­pinned by the un­con­di­tional and ir­re­vo­ca­ble fi­nan­cial guar­an­tee pro­vided by Dana­jamin Na­sional Bhd (Dana­jamin), which car­ries a fi­nan­cial in­surer strength rat­ing of AAA/sta­ble from the rat­ing agency.

How­ever, MARC said An­tara’s stand­alone credit pro­file re­mained weak amidst chal­leng­ing con­di­tions for the do­mes­tic steel in­dus­try char­ac­terised by ex­cess sup­ply and cheaper steel im­ports from China.

The rat­ing agency said these fac­tors have im­peded lo­cal steel pro­duc­ers from ben­e­fit­ing from im­proved de­mand driven by an in­crease in in­fra­struc­ture ac­tiv­ity.

In ad­di­tion, MARC said the steel prod­ucts man­u­fac­turer has size­able un­paid re­ceiv­ables due from two re­lated com­pa­nies, namely Me­gas­teel Sdn Bhd (Me­gas­teel) and Lion DRI Sdn Bhd (Lion DRI).

MARC said it views that the col­lec­tion of re­ceiv­ables from Me­gas­teel and Lion DRI to­talling RM74.1 mil­lion as at June 30, 2015 (FY15) will be pro­tracted pend­ing debt re­struc­tur­ing ne­go­ti­a­tions fol­low­ing their debt de­faults last year and the tem­po­rary ces­sa­tion of op­er­a­tions at Me­gas­teel plant early this year.

Fur­ther­more, MARC said An­tara also suf­fered sig­nif­i­cant lower sales, where it shut down the hot bri­quet­ted iron plant in Labuan for 37 days on top of a 63-day clo­sure for main­te­nance work in 9MFY16 in or­der to min­imise fur­ther losses.

With no sig­nif­i­cant re­cov­ery in the steel in­dus­try ex­pected in the near term, MARC said it an­tic­i­pates the weak­ness in An­tara’s op­er­at­ing per­for­mance to con­tinue.

MARC said the com­pany’s liq­uid­ity re­mains very tight with lim­ited fi­nan­cial flex­i­bil­ity, and it con­tin­ues to rely on cash flows gen­er­ated from op­er­a­tions to meet short-term obli­ga­tions.

“Note­hold­ers are nonethe­less, in­su­lated from the down­side risks in re­la­tion to An­tara’s credit pro­file by the guar­an­tee pro­vided by Dana­jamin.”

“Any changes in the sup­ported rat­ings or rat­ing out­look will be pri­mar­ily driven by changes in Dana­jamin’s credit strength,” it added.

An­tara made a re­pay­ment of RM60 mil­lion un­der the rated pro­gramme on June 28, 2016. Its cur­rent out­stand­ing amount un­der the pro­gramme is RM120 mil­lion, of which RM60 mil­lion each is due on June 29, 2017 and June 28, 2018.

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