Thursday 1 March 2012

RAM Ratings downgrades Silver Bird Group’s debt notes, negative outlook

KUALA LUMPUR (March 1): RAM Rating Services Bhd has downgraded the respective long- and short-term ratings of SILVER BIRD GROUP BHD []’s RM30 million Commercial Papers/Medium-Term Notes Programme (2005/2012) (CP/MTN), from A2 (negative outlook) and P2 to C3 and NP.

“We have concurrently placed the group on Rating Watch, with a negative outlook,” it said on Thursday.

RAM Ratings said the steep downgrade was premised on the heightened likelihood of default on the group’s CP/MTN following a series of unfavourable developments announced on Feb 29, 2012.

These include the failure of its units to repay their banking facilities amounting to RM5.37 million, a disclaimer of opinion expressed by the auditors on the Group’s audited accounts for FYE 31 October 2011 (FY Oct 2011), and the suspension from work of three key personnel (the group managing director, the executive director and a senior member of its management team).

RAM Ratings said based on the terms of the CP/MTN and as stated in the trust deed, the default on the Group’s banking facilities constitutes a cross-default on the CP/MTN if the noteholders wish to exercise their rights.

Meanwhile, the suspension from work of the three key personnel is to facilitate an internal inquiry into allegations of, among others, irregularities in the group’s accounts. Silver Bird Group’s board has initiated a forensic review of its accounts, to be completed within three months. The group is also expected to announce its plan on the regularisation of the abovementioned selective defaults.

“Under the circumstances, RAM Ratings opines that Silver Bird Group’s repayment capacity on its RM15 million of outstanding CP/MTN (due on April 15, 2012) is now highly questionable.

“We note that certain numbers in the group’s just-released audited FY Oct 2011 accounts vary substantially from those stated in its quarterly results announced on Dec 30, 2011.

“In particular, Silver Bird Group’s cash balances have been restated at only RM3.56 million, in contrast to the earlier RM35.84 million. Even if its repayment aptitude were to remain intact, the Group may opt to suspend payment of its financial obligations until the findings of the forensic review are revealed (i.e. as in the case of its subsidiaries’ RM5.37 million of banking facilities), which is likely to only take place after the maturity of the CP/MTN,” RAM Ratings said.

The ratings agency said the negative outlook on Silver Bird Group’s previous ratings had reflected our concerns over its ability to expand its market share in the premium-bread market and preserve its already-thin margins amid rising costs. Moreover, thegGroup’s recent venture into the manufacture of dairy products exposes it to new risks.

RAM Ratings said the Rating Watch may be resolved following the completion of SBGB’s forensic review and regularisation plan, provided these are completed before April 15, 2012.

Alternatively, the ratings will be downgraded to D should the group fail to redeem the outstanding CP/MTN upon maturity.



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