CollateralCelcom 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, plantand 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. ConclusionIn 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 lossin 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. 37
6.2 Altman Z’s ScoreFormulaeCalculationX1=WorkingCapitalTotal AssetsX1=11,801,734−18,295,33269,910,996X1=−0.093X2=Retained EarningsTotal AssetsX2=11,584,60669,910,996X2=0.168X3=EBITTotal AssetsX3=3,000,04769,910,996X3=0.043X4=Market Valueof EquityBook Valueof LiabilitiesX4=30,504,58339,406,413X4=0.774X5=SalesTotal AssetsX5=24,402,40169,910,996X5=0.349Z = 1.2X1+1.4X2+3.3X3+0.6X4+1.0X5= 1.2(-0.093) + 1.4 (0.168) + 3.3(0.043) + 0.6(0.774) + 1(0.349) = 1.0789= 1.08The 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 showsthat 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. 38
6.3 Bank Loan CovenantBank 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.