Ingress covenant breaches prompt default notice on RM 160 million Sukuk

By Caroline Salls

Pittsburgh, April 10 - Ingress Corp. Bhd. received a notice of default on its RM 160 million Sukuk Al-Ijarah in connection with covenant breaches, according to a news release.

Specifically, CIMB Trustee Bhd. said the company's debt-to-equity ratio is 2.03 times and encumbrances created by Ingress are 63% of its consolidated net tangible assets, both of which constitute covenant breaches.

Under the Sukuk indenture, the debt-to-equity ratio cannot exceed 1.75 times and the encumbrances cannot be more than 20% of the consolidated net tangible assets.

The company has three months to cure the default, provided, however, that Ingress must provide an acceptable plan or proposal of the steps it plans to take to cure the breaches within one month.

The company said it is finalizing a financial proposal to address the default issues and intends to submit it within the one-month time period.

Ingress said in the release that the ratio used in the default judgment does not follow the latest accounting standards governed by the Financial and Reporting Standards.

The company said the FRS would have taken minority interests as part of equity calculations into consideration, which would yield a debt-to-equity ratio of 1.61 times.

According to the release, the increase in the debt-to-equity ratio arises from the need to fund the company's expansion. This, coupled with higher operating costs, resulted in a longer time frame for the recovery of investments, the release said.

In addition, Ingress said the encumbrances ratio of 63% was calculated based on the incremental secured borrowings from July 2004 to January 2007 as presented in the company's audited financial statements, which do not reflect the fact that the calculated encumbrances did not consider permitted encumbrances created before the issuance of the Sukuk, which are to be excluded from the calculation.

Ingress also said the actual encumbrances following the definition in the Ijarah agreement based on the actual utilized amounts at Jan. 31, 2007 were actually RM 10.5 million, which is only 6.6% of the consolidated net tangible assets.

Ingress is a Selangor, Malaysia-based automotive component manufacturer.

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