Collateral celcom has sufficient collateral to be

Collateral
Celcom has sufficient collateral to be used as security such as property, plant and equipment for
loan application. The total valuation of 23,715,497 in securities and 16,145,982 in property, plant
and equipment. It shouldn’t be a concern for Celcom defaulting the loan as their securities are
sufficient to repay the full amount of loan.
After the analysis in section 5 (Security), Celcom has sufficient amount of collateral to be used
as security over the RM40million of loan. Therefore, in the default, Celcom is capable of
repaying the loan through the second way out.
Conclusion
In conclusion, the 5’c credit analysis approach has determined that the loan providing to Celcom
is advisable and suitable. Although Celcom has weak liquidity, solvency ratio and also minor loss
in profitability ratio, therefore the decline performance is still acceptable. This is because it
mainly due to weak economy and facing intense competition. In additional, the final decision for
the loan approval should be determine on Celcom’s historical finance report and also the
knowledge of MSL Bank lending officer. Therefore, with use of Altman Z’s score below is able
to determine whether the loan is approval to Celcom.
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6.2 Altman Z’s Score
Formulae Calculation
X
1
=
WorkingCapital
Total Assets
X
1
=
11,801 , 734 − 18,295,332
69,910,996
X
1
=− 0.093
X
2
=
Retained Earnings
Total Assets
X
2
=
11,584,606
69,910,996
X
2
= 0
.168
X
3
=
EBIT
Total Assets
X
3
=
3,000,047
69,910,996
X
3
= 0.043
X
4
=
Market Valueof Equity
Book Valueof Liabilities
X
4
=
30,504,583
39,406,413
X
4
= 0.774
X
5
=
Sales
Total Assets
X
5
=
24,402,401
69,910,996
X
5
= 0.349
Z =
1.2 X
1
+ 1.4 X
2
+ 3.3 X
3
+ 0.6 X
4
+ 1.0 X
5
= 1.2(-0.093) + 1.4 (0.168) + 3.3(0.043) + 0.6(0.774) + 1(0.349)
= 1.0789
= 1.08
The Altman’s Z Score method is used to examining the accounting ratio to access the credit risk
to make decision for loan approval. According to the score, if the firm scores 2.99 or above, it is
considered creditworthy. While the score less than 1.81, therefore does not consider
creditworthy. If the score falls under 1.81 to 2.99 which is zone of ignorance, then loan manager
is required to do more research on company background for decision making.
As the result of Altman Z’s score is 1.08, it proves that Celcom falls under distress zone. It shows
that Celcom might face the risk of insolvent in the future. Therefore, Celcom needs to find
solution to solve the problem to convince MSL Bank to issue the loan.
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6.3 Bank Loan Covenant
Bank loan covenants are the restrictions of loan agreement that protects MSL Bank by placing
limitations on Celcom’s activities. The agreements between Celcom and MSL Bank can contain
different types of covenants.
Firstly, the covenant is used to access the capability of the borrower to pay back debt (Chase
2014). MSL Bank may loan the $40 million to Celcom if the evaluation of business asset able to
cover the debts. However, if Celcom defaults the loan, MSL Bank can sell Celcom’s asset to get
back their loan. The financial covenants can prevent Celcom from using their assets on repaying
other loans and also will maintain the risk of MSL Bank at minimum since the sales of the assets
will not sell to other lenders of Celcom.