Wednesday, September 22, 2010

RAM Ratings puts RGB Intl, formerly Dreamgate Corp, on negative Rating Watch

KUALA LUMPUR: RAM Rating Services Bhd has placed the A1/P1 ratings of RGB International Bhd's (formerly Dreamgate Corp Bhd) RM200 million Commercial Papers/Medium-Term Notes Programme (2007/2014) (CP/MTN) on Rating Watch, with a negative outlook.

The ratings agency said on Wednesday, Sept 22 that RGB International is involved in sales and marketing; the provision of technical support; as well as maintenance and management services for gaming and amusement machines/equipment.

Below is the statement issued by RAM Ratings

The outlook on RGB International's long-term rating had earlier been revised from stable to negative in June 2010, premised on concerns that the Group's financial profile may not improve according to RAM Ratings' expectations.

RGB International had proposed a series of measures to address the Group's short-term financial position.

This includes the disposal of its 40%-interest in Chateau De Bavet (Chateau) casino and the slot machines in 5 of its 6 Macau concessions by end-September 2010, with the proceeds earmarked for the (partial) repayment of outstanding CPs amounting to RM49 million.

The Group was also expected to commence its new Technical Support and Management Services (TSM) concessions as scheduled.

The Rating Watch reflects RAM Ratings' concerns on RGB International's deteriorating financial and liquidity positions following delays in and changes to the proposed asset disposals, along with the Group's poor operating performance.

Without the proceeds from the asset sales, the Group will not be able to improve its balance sheet position and debt-protection metrics.

At the same time, slot machines affected by the changes in Cambodian gambling regulations have yet to be fully redeployed because of the delayed opening of several TSM outlets in the Philippines.

This, coupled with lower revenue from its sales and marketing division as well as higher losses incurred by Chateau, had led to a deeper pre-tax loss of RM30.91 million for the Group in 1H FY Dec 2010 (1H FY Dec 2009: RM20.15 million).

'Given these recent developments, RGB International's liquidity position has been further compromised. As at end-June 2010, the Group has cash balances of about RM30.14 million against short-term borrowings of RM153.75 million and trade payables of around RM65.47 million.

'Meanwhile, the quantum of the Group's operating losses will likely to be higher than expected, further eroding its shareholders' funds and weakening its balance sheet. More crucially, RGB International's liquidity problems are likely to become more acute without the proceeds from the asset disposals and a sustained improvement in its cashflow.

All these factors indicate that a multiple-notches downward adjustment in the ratings may be warranted,' observes Kevin Lim, RAM Ratings' Head of Consumer and Industrial Ratings.

RAM Ratings is currently reassessing RGB International's credit profile based on the recent developments, and will take the appropriate rating action in due course.


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