KUALA LUMPUR: MARC has downgraded its rating on Malaysian Merchant Marine Bhd's (MMM) RM120 million Al Bai' Bithaman Ajil Islamic debt securities (BaIDS) to CID from BB+ID.

Concurrently, the rating has been placed on MARCWatch Negative. In a statement on Wednesday, March 17, the rating agency said the actions reflected its view that default appeared imminent.

MARC said MMM's recurring losses from operations, eroded capital base and its inability to generate sufficient cash flow to meet its obligations and sustain its operations raised substantial doubt about its ability to continue as a going concern.

It said the recent forfeiture of its deposit on an aborted purchase of a vessel caused MMM's consolidated shareholders' equity to fall below 25% of its paid-up capital and was currently less than RM40 million.

Apart from becoming an affected listed issuer pursuant to Bursa Malaysia Securities Bhd's Practice Note 17 (PN17), MARC believes that the recent developments will likely result in an immediate demand for repayment on MMM's BaIDS and bank borrowings.

Given the company's liquidity position, the rating agency does not expect MMM to be able to satisfy, in aggregate, the prepayments on the BaIDS and bank borrowings.

"Even in the absence of an acceleration of MMM's debt maturities, MARC believes that the company will be unable to meet its required finance service reserve account build-up payment in May, which is equal to 50% of the outstanding BaIDS of RM24 million. The BaIDS mature in November 2010," it said.

MARC said MMM directors had on March 5, expressed doubt about the company's ability to continue as a going concern and had more recently announced the completion of MMM's staff retrenchment exercise.

It said currently, the only revenue generating asset was the MMM Ashton, a double-hulled vessel which is currently deployed under a bareboat charter contract and the vessel was targeted for disposal by May in order to meet the upcoming BaIDS commitment.

MARC said the net realisable value of the vessel, initially estimated at about US$11 million (RM36.3 million), was likely to be significantly lower given the current weak tanker market.

It added that MMM's management's revised estimate of net realisable value was now about US$5 million, while the timing of the disposal also remained highly uncertain.