Business

Monday November 9, 2009

CCM plans revamp

By LAALITHA HUNT


It aims to strengthen its financial position

PETALING JAYA: Chemical Co of Malaysia Bhd (CCM) is planning a series of restructuring exercises to strengthen its financial position going forward following a downgrade in the outlook of the long-term ratings for its bond issue.

Finance director Ahmad Mustaffa Abdul Manaf said the group would be looking at appropriate restructuring of its balance sheet as well as improving returns and margins from its businesses in order to improve its immediate and mid-term liquidity.

“In terms of the group’s debt portfolio, with the scheduled refinancing of the RM200mil bond at the end of this year, our borrowings will be restructured and spread into longer-term duration in order to improve liquidity,” Ahmad Mustaffa told StarBiz.

The group was also proceeding with disposals of its non-core (property) assets as part of its commitment to strengthen its financial position.

Going forward, CCM would continue to pursue a high-growth strategy by focusing on regional expansion, according to Ahmad Mustaffa.

“Business portfolios would also be reshaped to generate higher earnings and returns to shareholders.”

CCM’s liquidity and gearing deteriorated in the financial year ended Dec 31, 2008 (FY08) primarily due to increased working capital requirements on the back of steeply rising prices.

However, with the onset of the economic downturn, working capital and inventory values had come down while collections on sales made at previous high prices had been ongoing, hence the group’s operating cash flow in FY09 had turned into a surplus, Ahmad Mustaffa said.

The group has yet to announce its third-quarter results.

Rating agency RAM Rating Services Bhd had reaffirmed in July the AA3 rating of CCM’s RM200mil fixed-rate bonds, as well as the respective long- and short-term ratings of AA3 and P1 of its RM500mil Musharakah commercial papers, also known as the medium-term notes programme.

However, the outlook on the long-term ratings has been revised from “stable” to “negative”.

According to RAM, the reaffirmation of the ratings was underscored by CCM’s entrenched market position in its core businesses, its well-diversified business profile, and the financial flexibility derived from its major indirect shareholder, Permodalan Nasional Bhd.

“CCM’s diversified business profile encompasses pharmaceutical products, fertilisers and industrial chemicals, enabling it to more effectively withstand a downturn in any particular sector,” RAM said in its report.

However, CCM remained exposed to the cyclical nature of industrial demand while the performance of its fertilisers division was largely dependent on the fortunes of the palm oil industry, which was also highly cyclical, the rating agency said.

“The revision of the outlook from ‘stable’ to ‘negative’ is premised on RAM Ratings’ concerns about the deterioration in CCM’s credit profile, which may worsen or be prolonged due to the weak economic conditions.”

As at end-FY08, CCM’s gearing ratio had deteriorated to 1.06 times due to a surge in borrowings to fund its capacity expansion and acquisitions, as well as heavier working-capital requirements (end-FY07: 0.53 times).

“As the group has already committed to additional capacity expansion over the next three years, we expect its gearing ratio to rise further to about 1.2 times, which is beyond our previous expectation of around 1 time,” RAM said.

RAM added that the outlook on the ratings might, however, revert to “stable” should CCM demonstrate significant and sustained improvement in its balance sheet and debt-coverage metrics over the next one to two years.

 
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