Mar 28, 2014

MARC has issued this update to highlight that the recent two-month shutdown of Antara Steel Mills Sdn Bhd’s (Antara) Labuan based Hot Briquetted Iron (HBI) plant will have no impact on the AAAIS(fg)/stable rating on the steelmaker’s RM300.0 million Sukuk Mudharabah Programme which is guaranteed by Danajamin Nasional Berhad (Danajamin). However, the rating agency notes the steelmaker’s standalone credit profile has been further weakened by the shutdown in addition to the challenging conditions in the steel industry.

Due to a vessel collision with Antara’s ship loader system at the Labuan jetty, the HBI plant ceased operations from August 5, 2013 to October 12, 2013 as raw materials could not be unloaded from the vessel. Antara employed two floating cranes for loading and unloading purposes while repair works on the ship loader system were carried out. The repair works have since been completed with the ship loader system certified fit for usage on March 25, 2014. MARC understands that the steelmaker is now seeking an insurance claim for damages.

For the first six months ended December 31, 2013 (6MFY2014), Antara registered a pre-tax loss of RM64.1 million (FY2013: pre-tax profit of RM14.2 million) on a revenue of RM576.3 million (FY2013: RM1,585.8 million). The steelmaker’s cash flow from operations was negative RM65.0 million. The rating agency notes with some concern that the steelmaker’s liquidity position has weakened with cash and bank balances declining to RM59.5 million as at end-6MFY2014 (end-FY2013: RM187.8 million).

Nonetheless, Antara has adhered to the monthly build-up in its financial service reserve account (FSRA) to meet the first principal payment of RM60.0 million due on June 27, 2014 on the outstanding RM300.0 million sukuk. The FSRA balance stood at RM43.1 million as at March 12, 2014. Noteholders are however insulated from the downside risks in relation to Antara’s credit profile by virtue of the guarantee provided by Danajamin.

Contacts: 
Ngiam Tee Wei, +603-2082 2268 / teewei@marc.com.my
Yap Lai Ken, +603-2082 2247 / laiken@marc.com.my .

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