Significant Covenant

When a company has something "serious", bank or third party has made a remark, or restriction. Let's see how it goes...

Significant covenants
Loan and borrowings are subject to the fulfillment of the following significant covenants by a subsidiary:
(a) not to permit the gearing ratio of its consolidated borrowings to its consolidated tangible net worth to exceed the ratio of 1.5 times and its consolidated current ratio of above 1.25 times;

(b) not to incur, assume, guarantee or permit to exist any future indebtedness without the prior written consent of the banks;

(c) not to cause, suffer or permit any of the security assets to be remove from the location approved by the bank without the prior written consent of the bank;

(d) not to add, delete, vary or amend the Memorandum of Association in a manner inconsistent with the provisions of the deed without the prior written consent of the bank;

(e) not to reduce or make any alteration to the authorized and issued share capital without the prior written consent of the bank;

(f) not to allow any change in its management and ownership structure without the prior written consent of the bank;

(g) "XXXX Berhad" to remain as a subsidiary of XXXX Berhad at all times; and

(h) not to declare and pay any dividend or other distribution whether of an income or capital nature without the prior written consent of the bank.

A subsidiary has taken new borrowing for its construction of the new plant and this has resulted in the gearing ratios and current ratio exceeding the ratios prescribed in (a) above. Nevertheless, the subsidiary has obtained waiver and indulgences from the respective banks for the gearing ratio and current ratio being more than the ratios prescribed in (a) above.

At 30 June 2009, the subsidiary has delayed in its repayment of installments for three of its terms loans due to the delay in shipment of the June 2009 cargo to July 2009 causing a mismatch in cash receipts and outflows. However, prior to 30 June 2009 the lender banks of these three term loans have granted their indulgence on the deferment of the repayments.

As such, the liability has not been classified as current liability. Subsequent to the year end, the subsidiary has regularized these outstanding repayments.

< from HOVID Berhad >

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