TRIS Rating was informed on 15 November 2005 by AA that AA sent a notice to the Bank of New York, a Trustee of the 13% Guaranteed Notes due 2007, regarding prior technical default under indenture. The total outstanding amount of the Notes as of 30 October 2005 was around US$48 million.

There are two general categories that the Issuer (Advance Agro Capital B.V.) and the Guarantor (AA) have overlooked that would constitute technical defaults under the covenants contained in the indenture. First, on several occasions, the Issuer has not filed Form 20-F with the Trustee following the de-registration of the notes with the US SEC. In addition, some of AA's affiliated party transactions have not been approved by a majority of disinterested board of directors nor have they been received a fairness option from an internationally recognized investment bank.

AA reported to TRIS Rating that until now, the company has punctually met all its debt obligations and it has not yet received any response from the Trustee regarding the letter that was sent to them on 21 October 2005. However, AA told TRIS Rating that the the Trustee arranged for a notice to be sent to the noteholders on 26 October 2005 advising them of the company's technical defaults. AA stated to TRIS Rating that the company does not expect the noteholders will make such a call (does not expect the company to be declared in default by the noteholders).

However, TRIS Rating considers that the failure to comply with these covenants could potentially enable noteholders to accelerate payment, which could possibly lead to a liquidity problem for AA. In addition, there is a cross-default clause in the Master Override Agreement (MOA) that the company has with three local banks which states that if AA defaults on any debt obligations worth more than US$2 million and if the situation is not remedied within 30 days after notice of such default is given to AA by a finance party, it will result in a cross-default on AA's loans under the MOA.

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