Outlook for steel products has improved
KUALA LUMPUR: Malaysian Rating Corporation Bhd (MARC) has affirmed the AAAIS(fg) rating on Antara Steel Mills Sdn Bhd's RM300mil Sukuk Mudharabah programme with a stable outlook.
It said on Monday 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,” it said.
MARC said the affirmed rating and outlook are based on the unconditional and irrevocable financial guarantee insurance provided by Danajamin Nasional Bhd.
MARC has an insurer financial strength rating of AAA/stable and long-term counterparty credit rating of AAA/stable on Danajamin Nasional.
“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,” it said.
MARC said 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's revenue increased 5.3% on-year to RM493.6mil and a profit after tax of RM43.5mil 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,” it said.
MARC said although this restricts Antara’s use of its cash, its considers this arrangement as facilitating the cash conversion cycle and that the company’s liquidity is manageable.
At end-9MFY2017, cash reserves stood at RM116.9mil, about RM65.4mil of which was applied to repay the instalment under the rated sukuk on June 28, 2017. The final sukuk instalment of RM60mil is due on June 28, 2018.
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