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TEXT-Malaysia's RAM downgrades BSA's Islamic notes

Reuters - Tuesday, May 13

KUALA LUMPUR, May 12 - RAM Ratings has downgraded the B1/NP ratings of BSA International Berhad's ("BSA" or "the Group") - KUALA LUMPUR, May 12 - RAM Ratings has downgraded the B1/NP ratings of BSA International Berhad's ("BSA" or "the Group") RM150 million Murabahah Commercial Papers/Medium-Term Notes , to C3/NP. Meanwhile, the Rating Watch on BSA, in place since 12 February 2008, has been maintained. The downgrade reflects BSA's heightened default risk for the MCP/MMTN Programme due to its failure to maintain sufficient funds in its finance service reserve account . RAM Ratings has received confirmation from the Trustee that BSA has been unable to remedy the shortfall in the FSRA since 27 November 2007. As such, there is a high probability that BSA may not be able to meet the RM1.13 million profit payment due on 26 May 2008. RAM Ratings further notes that although BSA paid the overdue RM1.49 million interest on its RM45 million loan under a collateralised-loan-obligation programme on 14 April 2008, the facility remains classified under "mandatory loan-prepayment event". RAM Ratings has been unable to conduct a thorough assessment of the Group's business and financial profiles as BSA has not responded to our repeated requests for information. Based on the Group's audited accounts for FYE 31 December 2007, however, its liquidity position remained precarious as it had RM151.04 million of short-term debts compared to available just RM6.65 million of cash reserves. Given its high leverage (gearing ratio of around 2 times), BSA is viewed to have limited financial flexibility to refinance its maturing debts. RAM Ratings' Rating Watch highlights a possible change in an issuer's existing debt rating. It focuses on identifiable events such as mergers, acquisitions, regulatory changes and operational developments that place a rated debt under special surveillance by RAM Ratings. In a broader sense, it covers any event that may result in changes in the risk factors relating to the repayment of principal and interest. Issues will appear on RAM Ratings' Rating Watch when some of the above events are expected to or have occurred. Appearance on RAM Ratings' Rating Watch, however, does not inevitably mean that the existing rating will be changed. It only means that a rating is under evaluation by RAM Ratings and a final affirmation is expected to be announced. A "positive" outlook indicates that a rating may be raised while a "negative" outlook indicates that a rating may be lowered. A "developing" outlook refers to those unusual situations in which future events are so unclear that the rating may potentially be raised or lowered.

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