KUALA LUMPUR: Malaysian Rating Corporation Bhd (MARC) has affirmed its rating of B-IS with a stable outlook on Talam Transform Bhd’s outstanding RM52.1 million Settlement Bithaman Ajil Islamic Debt Securities (Settlement BaIDs).
In a statement today, the rating agency said the affirmed rating continues to reflect Talam’s weak business and financial profile and its reliance on asset disposals to meet financial obligations.
During the period under review, Talam’s asset disposals declined due mainly to soft property market conditions as well as the generally less prime location of its current land parcels.
MARC said Talam has 976 acres which the group has valued at RM689.4 million net of encumbrances.
Further, the company has pending land sales of RM153.5 million and the upcoming sale of its equity stake in Jilin Province Maxcourt Hotel Ltd (JPMHL) in China for RM52.5 million which it expects to receive RM73.4 million in the financial year ending January 31, 2018 (FY2018) and RM84.6 million in FY2019.
“MARC notes, however, that the disposals are exposed to completion risks given the already extended payment deferment dates and the regulatory approval required for the JPMHL sale,” it said.
In FY2017, Talam reported a revenue decline of 27.4 per cent year-on-year to RM113.0 million and losses before tax of RM36.2 million.
The losses were due to lower operating earnings and higher net finance cost arising mainly from the discounting effect of FRS 139 due to the reclassification of two of Talam’s receivables to long term.
In the first half (1H) of FY2018, Talam’s revenue of RM28.1 million consisted mainly of progressive collections from its asset disposals, recording losses before tax of RM10.2 million.
Net borrowings increased by RM11 million in 1HFY2018 after Talam secured a new loan of RM26 million for working capital purposes.
Total borrowings stood at RM110.2 million as at end-1HFY2018.
“MARC notes with concern the sizeable outstanding trade and other payable balances of RM396.4 million.
“Talam is negotiating with its largest creditor, IJM Group, to repay RM161.5 million via a combination of contra land payments and profit from their joint-venture project.
“The payment due date has been extended to May 21, 2018,” it said.
MARC said the outstanding BaIDs, which is secured against a collateral value estimated at RM19.6 million, is expected to reduce to RM43.8 million by end-2017 from the sale proceeds of part of the collateral, with the remaining principal repayment is due on June 28, 2019.
Talam expects to meet the profit payment and redemption of the BaIDS from its pending asset sales.
MARC said it may downgrade the rating if Talam experiences further setbacks in its asset sales.
“In light of continued uncertainties on the asset disposals, MARC considers Talam’s outstanding Settlement BaIDs to remain vulnerable to non-payment risk,” it said.