Legal suit pending sukuk revamp

PETALING JAYA: Legal action is pending against Tan Sri Abu Sahid Mohamed’s Bright Focus Bhd by holders of its RM1.35bil sukuk musharakah, as they look to recover RM97.02mil in advances made to its holding company, Maju Holdings Sdn Bhd, in 2018.

Bright Focus holds the concession for the 26km Maju Expressway (MEX) via its 96.8% subsidiary Maju Expressway Sdn Bhd (MESB).

It is a wholly owned subsidiary of Maju Holdings, in which Abu Sahid is executive chairman and ultimate shareholder.

“The legal action is now pending following a restructuring exercise of the sukuk. Steps are being taken to bring in liquidity support from a financial institution, and to relook some of its repayment timelines,” said a source.

In a written response, a spokesperson for Bright Focus confirmed that the legal action is pending its restructuring proposal where it would initiate a new debt for debt swap to address the following:

> Better debt service cover ratio (DSCR) via a liquidity facility that is pending approval.

> The corporate governance issue which was not highlighted to it by the previous adviser and lead arranger.

> Verification of expenses to be independently verified by a third-party quantity surveyor as well as other relevant consultants.

“We would like to point out that MEX is performing very well and even RAM in its latest rating rationale acknowledges the fact that despite subjecting the projected cashflows to severe assumptions, MEX is on target to meet all its debt obligations,” said the spokesperson.

The spokesperson added that the issue is to address the potential DSCR which in turn would impact rating levels.

“We are also addressing the weakness in the previous term sheet which our current advisers are currently reviewing,” said the spokesperson.

Bright Focus has appointed NewParadigm Capital Markets Sdn Bhd as the financial adviser for the restructuring of the sukuk.

“Should the restructuring exercise be successfully implemented, Bright Focus’ sukuk would be able to regain its investment-grade status,” said the source.

The initial legal action by sukuk holders had caused RAM Ratings to downgrade Bright Focus’ sukuk six notches down from A1 to BB1 on June 3. Sources said the sukuk holders include Lembaga Tabung Haji, Malayan Banking Bhd, Standard Chartered, Nomura Asset Management, Amundi, Retirement Fund Inc, KAF and RHB.

The legal action came about because unanticipated advances were made by Bright Focus’ 96.8% subsidiary, MESB, to its ultimate parent company, Maju Holdings.

The first advance of RM73mil was in June 2018.

Additional advances of up to RM24.82mil were paid to the group’s ultimate shareholder between September and November 2018.

“It was a collective decision by the sukuk holders to demand money back from Maju Holdings for wrongful acts and breach of the covenants of the bonds.

“If every issuer does this, who will want to buy bonds?” said one of the sukuk holders.On May 24, a letter of demand was sent to MESB, requiring the company to return all prohibited advances to date and reinstate its cash position within the next 30 days.Bright Focus had on May 30 issued a reply letter, stating the amount of advances and that it was taking steps to repay them.

This sukuk dispute came before Abu Sahid’s bid to buy over PLUS (M) Bhd, the operator of the North-South Expressway earlier this year, with a promise to reduce toll rates by running the highway more efficiently.Yesterday, the Finance Ministry made a preliminary decision to oppose the takeover of PLUS by Maju Holdings after considering the views from PLUS’ major shareholders Khazanah Nasional Bhd and the Employees Provident Fund.

RAM Ratings has not only downgraded the sukuk to BB1, but put it on a rating watch, with a negative outlook.

One of the sukuk holders opined that RAM Ratings move was drastic.

“The second rating action that led to a six-notch downgrade, despite it being a performing bond, is unheard of and alarming,” said another sukuk holder.

This is because at the current rating of BB1, the RM1.35bil sukuk issued by Bright Focus is no longer under the investment-grade category (the lowest investment-grade category is BBB).

This is the second downgrade made by RAM Ratings. It had first downgraded Bright Focus from AA2 to A1 following the first advance of RM73mil in June 2018.

“The unanticipated advances – although disallowed under the sukuk’s transaction terms – severely depleted the cash balances of MESB, the concessionaire for the MEX and the sole source of cashflow supporting the repayment of the sukuk,” said RAM Ratings in its report.

“The continued breach of the financing terms of the sukuk also shows huge breaches in financial management policies and corporate governance,” added RAM Ratings.

Another area of concern is that MESB’s performance is sensitive to the government’s decisions on toll rate movements.

“The company’s compensation receipts are constrained by the projected traffic volume under its concession agreement, as two of its three toll plazas already exceeded these projections.

“A delay in MESB’s toll rate hike to 2021 (from RAM Ratings’ previous assumption of 2020) would reduce its projected revenue by RM39mil in 2020,” said the rating agency.