Englotechs

Posted on Sept 27th 2007, Englotechs Trade Receivables

I just noted that MARC has downgraded Englotechs, on rating watch

• KUALA LUMPUR: Malaysian Rating Corporation Bhd (MARC) has downgraded its rating on Englotechs Holding Bhd’s RM50 million Murabahah medium term notes (MMTN) programme to BBB-ID from BBB+ID and placed on a negative watch.
  
  In a statement yesterday, MARC said the downgrade reflected continued deterioration in Englotechs’ financial risk profile.
  
  It said the company was in breach of its finance to net tangible assets ratio (FNR) covenant and was at risk of a further covenant breach in relation to its obligation to restore the finance service reserve account (FSRA) balance to its minimum required level.
  
  Englotechs, which is required to restore the FSRA balance by April 4, 2008, makes cotton gloves, primarily industrial work gloves for the manufacturing industry. Its manufacturing facilities are located in Padang Meha Industrial Estate, Kedah and Lianyungang, China.
  
  MARC said tough operating conditions in 2007 stemming from intense competition pressures from China’s low cost cotton glove manufacturers resulted in a precipitous decline in credit protection measures and a subsequent breach in its FNR covenant.
  
  It said as at June 2007, Englotechs’ FNR deteriorated to 1.45 times, exceeding the covenanted cap of 1.35 times. MARC said although Englotechs obtained indulgence from noteholders to remedy the breach, the covenant breach remained unresolved.
  
  MARC said Englotechs had not been able to remedy the breach within the specific time period by March 17, 2008.
  
  It said since MARC’s downgrade of Englotechs rating to BBB+ID from AID in Sept 19, 2007, the company’s liquidity position had deteriorated further.
  
  MARC said Englotechs on March 26, 2008 was unable to meet its semi-annual coupon payment of RM1.72 million from its profit service reserve account (PSRA) and consequently, funds in its FSRA were used for the profit payment.
  
  As provided under the terms of the MMTN issuance, MARC said Englotechs was in the midst of seeking an extension of time, beyond the April 4 deadline to restore the FSRA to its minimum required balance.
  
  "Noteholders are in a position nevertheless to declare an event of default and accordingly, declare the entire facility due and payable. No EOD has been called to date," it said.
  
  MARC said resolution of the MARCWatch Negative and the maintenance of the rating depended on Englotechs’ success in obtaining appropriate waivers from noteholders and to eliminate near-term liquidity concerns.
  
  The stock fell 0.5 sen yesterday to close at 14.5 sen.