MARC Affirms its AAAIS (Fg) Rating on Antara Steel Mills' Sukuk With Stable Outlook

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1. IB ​ ​Press​ ​Release​ ​Service Published​ ​on:​​ ​IslamicBanker.com​ ​Publications:​ ​https://www.islamicmarkets.com/publications MARC​ ​Affirms​ ​its​ ​AAAIS​ ​(Fg)​ ​Rating​ ​on​ ​Antara Steel​ ​Mills'​ ​Sukuk​ ​With​ ​Stable​ ​Outlook 25​ ​September​ ​2017 MARC​ ​has​ ​affirmed​ ​its​ ​rating​ ​of​ ​AAAIS(fg)​ ​on​ ​Antara​ ​Steel​ ​Mills​ ​Sdn​ ​Bhd's​ ​(Antara)​ ​RM300.0 million​ ​Sukuk​ ​Mudharabah​ ​Programme​ ​with​ ​a​ ​stable​ ​outlook.​ ​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. Antara's​ ​standalone​ ​credit​ ​profile​ ​has​ ​improved​ ​marginally​ ​in​ ​the​ ​nine-month​ ​period​ ​ended March​ ​31,​ ​2017​ ​(9MFY2017),​ ​on​ ​the​ ​back​ ​of​ ​a​ ​higher​ ​capacity​ ​utilisation​ ​rate​ ​at​ ​its​ ​hot briquetted​ ​iron​ ​(HBI)​ ​operations​ ​in​ ​Labuan​ ​in​ ​line​ ​with​ ​higher​ ​steel​ ​prices.​ ​The​ ​Labuan​ ​plant's capacity​ ​utilisation​ ​rate​ ​increased​ ​significantly​ ​to​ ​74.3%​ ​in​ ​9MFY2017​ ​(9MFY2016:​ ​42.0%).​ ​Its Pasir​ ​Gudang​ ​plant's​ ​performance,​ ​however,​ ​continued​ ​to​ ​deteriorate​ ​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​ ​difficulties​ ​faced​ ​in​ ​sourcing​ ​billets​ ​in​ ​the​ ​open​ ​market. Notwithstanding​ ​the​ ​foregoing,​ ​the​ ​recent​ ​upward​ ​trend​ ​in​ ​steel​ ​prices​ ​has​ ​prompted​ ​Antara​ ​to start​ ​producing​ ​billets,​ ​which​ ​would​ ​concurrently​ ​aid​ ​the​ ​production​ ​of​ ​steel​ ​bars. For​ ​the​ ​unaudited​ ​9MFY2017,​ ​Antara​ ​recorded​ ​revenue​ ​increase​ ​of​ ​5.3%​ ​y-o-y​ ​to​ ​RM493.6 million​ ​and​ ​a​ ​profit​ ​after​ ​tax​ ​of​ ​RM43.5​ ​million​ ​after​ ​three​ ​consecutive​ ​years​ ​of​ ​losses​ ​since FY2014.​ ​In​ ​addition​ ​to​ ​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​ ​rating​ ​agency​ ​also​ ​notes​ ​that​ ​receivables​ ​from Megasteel​ ​Sdn​ ​Bhd​ ​and​ ​Lion​ ​DRI​ ​Sdn​ ​Bhd​ ​were​ ​fully​ ​impaired​ ​in​ ​FY2016. Cash​ ​flow​ ​from​ ​operations​ ​(CFO)​ ​as​ ​well​ ​as​ ​cash​ ​flow​ ​coverage​ ​ratios​ ​improved​ ​in​ ​9MFY2017. 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.​ ​At​ ​end-9MFY2017, cash​ ​reserves​ ​stood​ ​at​ ​RM116.9​ ​million,​ ​about​ ​RM65.4​ ​million​ ​of​ ​which​ ​was​ ​applied​ ​to​ ​repay​ ​the instalment​ ​under​ ​the​ ​rated​ ​sukuk​ ​on​ ​June​ ​28,​ ​2017.​ ​The​ ​final​ ​sukuk​ ​instalment​ ​of​ ​RM60.0 million​ ​is​ ​due​ ​on​ ​June​ ​28,​ ​2018.
2. IB ​ ​Press​ ​Release​ ​Service Published​ ​on:​​ ​IslamicBanker.com​ ​Publications:​ ​https://www.islamicmarkets.com/publications Noteholders​ ​are,​ ​insulated​ ​from​ ​the​ ​downside​ ​risks​ ​in​ ​relation​ ​to​ ​Antara's​ ​credit​ ​profile​ ​from​ ​the guarantee​ ​provided​ ​by​ ​Danajamin.​ ​Any​ ​changes​ ​in​ ​the​ ​supported​ ​rating​ ​or​ ​rating​ ​outlook​ ​will​ ​be primarily​ ​driven​ ​by​ ​changes​ ​in​ ​Danajamin's​ ​credit​ ​strength. Organisation​ ​Name: News​ ​Type: Malaysian​ ​Rating​ ​Corporation​ ​Berhad​ ​(MARC) RATING​ ​ANNOUNCEMENT Source: BNM​ ​Announcements Media​ ​Contact Wan​ ​Abdul​ ​Muiz​ ​Wan​ ​Abdul​ ​Ghafar,​ ​+603-2717​ ​2939/ muiz@marc.com.my; Yap​ ​Lai​ ​Ken,​ ​+603-2717​ ​2947/​ ​laiken@marc.com.my. Disclaimer: This​ ​communication​ ​is​ ​provided​ ​by​ ​Malaysian​ ​Rating​ ​Corporation Berhad​ ​(MARC)​ ​on​ ​the​ ​basis​ ​of​ ​information​ ​believed​ ​by​ ​MARC​ ​to​ ​be accurate​ ​and​ ​reliable​ ​as​ ​derived​ ​from​ ​publicly​ ​available​ ​sources​ ​or provided​ ​by​ ​the​ ​rated​ ​entity​ ​or​ ​its​ ​agents.​ ​MARC,​ ​however,​ ​has​ ​not independently​ ​verified​ ​such​ ​information​ ​and​ ​makes​ ​no​ ​representation as​ ​to​ ​the​ ​accuracy​ ​or​ ​completeness​ ​of​ ​such​ ​information.​ ​Any assignment​ ​of​ ​a​ ​credit​ ​rating​ ​by​ ​MARC​ ​is​ ​solely​ ​to​ ​be​ ​construed​ ​as​ ​a statement​ ​of​ ​its​ ​opinion​ ​and​ ​not​ ​a​ ​statement​ ​of​ ​fact.​ ​A​ ​credit​ ​rating​ ​is not​ ​a​ ​recommendation​ ​to​ ​buy,​ ​sell,​ ​or​ ​hold​ ​any​ ​security.