05 JULY 2013www.thestar.com.my
MARC lowers rating on Press Metal's loan stocks, MarcWatch Negative
Edited by : AL CIRCLE
2 min read
Malaysian Rating Corporation Bhd (MARC) has downgraded its rating on Press Metal Bhd's outstanding RM317.5mil loan stocks with warrants from A- to BBB.
The ratings agency said on Wednesday the rating was placed on MARCWatch Negative pending greater clarity on the credit impact from the unexpected shutdown of Press Metal's aluminium smelting plant in Mukah, Sarawak, due to damage from the June 27 power outage.
MARC said the rating downgrade on Press Metal's redeemable convertible secured loan stocks (RCSLS) with detachable warrants was based on company's weakened business and financial profile.
It said this was mainly due to the recent sharp decline in aluminium price and impact of debt-financed expansion on its leverage in connection with its RM1.8bil aluminium smelting plant in Samalaju, Sarawak.
It pointed out that construction of the Samalaju plant, undertaken by subsidiary Press Metal Bintulu Sdn Bhd (PMBintulu), was nearing full completion. The first two phases of 120,000 tons per annum each fully operational and the final phase of 80,000 tonnes per annum are to be fully operational by mid-July 2013.
"Press Metal's new capacity will come onstream at a time when global demand for aluminium has waned with aluminium price declining sharply by about 37.9% from US$2,786 a tonne at end-May 2011 to US$1,729 at end-June 2013.
In MARC's view, sustained weak market conditions for aluminium will pose elevated risk to Press Metal's credit risk profile and subsidiary PMBintulu's ability to comply with its covenant of a minimum required debt service coverage ratio (DSCR) of 1.25 times.
Compounding Press Metal's current challenges is the recent unexpected shutdown of the 120,000 MT Mukah plant, for which the longer term credit implications remain unclear.
"MARC believes that Press Metal faces increased credit risks in the next 12 to 18 months due to the extensive damage to the plant and the immediate impact on operating income and cash flow while insurance claims are being processed," it said.
The ratings agency said on Wednesday the rating was placed on MARCWatch Negative pending greater clarity on the credit impact from the unexpected shutdown of Press Metal's aluminium smelting plant in Mukah, Sarawak, due to damage from the June 27 power outage.
MARC said the rating downgrade on Press Metal's redeemable convertible secured loan stocks (RCSLS) with detachable warrants was based on company's weakened business and financial profile.
It said this was mainly due to the recent sharp decline in aluminium price and impact of debt-financed expansion on its leverage in connection with its RM1.8bil aluminium smelting plant in Samalaju, Sarawak.
It pointed out that construction of the Samalaju plant, undertaken by subsidiary Press Metal Bintulu Sdn Bhd (PMBintulu), was nearing full completion. The first two phases of 120,000 tons per annum each fully operational and the final phase of 80,000 tonnes per annum are to be fully operational by mid-July 2013.
"Press Metal's new capacity will come onstream at a time when global demand for aluminium has waned with aluminium price declining sharply by about 37.9% from US$2,786 a tonne at end-May 2011 to US$1,729 at end-June 2013.
In MARC's view, sustained weak market conditions for aluminium will pose elevated risk to Press Metal's credit risk profile and subsidiary PMBintulu's ability to comply with its covenant of a minimum required debt service coverage ratio (DSCR) of 1.25 times.
Compounding Press Metal's current challenges is the recent unexpected shutdown of the 120,000 MT Mukah plant, for which the longer term credit implications remain unclear.
"MARC believes that Press Metal faces increased credit risks in the next 12 to 18 months due to the extensive damage to the plant and the immediate impact on operating income and cash flow while insurance claims are being processed," it said.
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