S&P Global, MARC downgrade Serba Dinamik

S&P said the downgrade reflects the rating agency’s view that the company would generally be in default of its debt obligations after it failed to meet its missed coupon payment within the stated grace period of 30 days.

KUALA LUMPUR: Engineering services company Serba Dinamik Holdings Bhd has been downgrade by S&P Global Ratings. The global rating agency downgraded Serba Dinamik to ‘D’ on the missed coupon payment of its sukuk.

It said the downgrade reflects the rating agency’s view that the company would generally be in default of its debt obligations after it failed to meet its missed coupon payment within the stated grace period of 30 days.

“The grace period expired on Dec 9, 2021.

“We lowered the issuer credit rating to ‘D’ from ‘CC’ because the default on its US$222mil (RMRM937mil) sukuk due May 2022 is likely to trigger a cross-default on its US$180mil (RM760mil) sukuk due March 2025 as well as long-term banking facilities.

“We estimate 70% of the company’s total outstanding debt as of Sept 30, 2021, could be liable for immediate repayment,” it added.

The company’s missed US$7mil (RM30mil) coupon payment on its sukuk indicates that the it is unable to remain current on its debt obligations. After a partial repayment of US$500,000 (RM2.1mil) on Nov 23, the current outstanding coupon payment due is US$6.5mil (RM27.4mil).

“In our view, its ensuing court proceedings with ex-auditor KPMG PLT, stock exchange Bursa Malaysia and special independent auditor Ernst & Young Consulting Sdn Bhd would further hinder its access to external capital funding.

“In the meantime, we expect the company to face a continued cash drain from its working capital-intensive operations over the next 12 months. This would further deplete its reported cash balance of RM290mil as of Sept 30, 2021.

“This cash balance is dwarfed by the company’s sizable RM1.48bil of debt maturing over the next 12 months, which is largely made up of a RM99mil syndicated loan amortisation payment due in December 2021, RM100mil of commercial paper and the US$222mil (RM937mil) sukuk. Both the commercial paper and sukuk are due in May 2022,” S&P Global said.

The company also has an upcoming coupon payment due on its outstanding US$180mil (RM760mil) sukuk in March 2022.

Meanwhile at the home front, Malaysian Rating Corporation Bhd (MARC) has also issued a downgrade on the company’s Islamic Medium-Term Notes Programme (IMTN) rating to CIS from BBIS//Negative.

Serba Dinamik’s Islamic Commercial Papers (ICP) rating remains at MARC-4IS which is the lowest category under the non-investment grade, reflecting the heightened risk of non-repayment on the outstanding RM100mil ICP.

“MARC’s downgrade action is premised on the missed semi-annual coupon payment of US$7mil (RM30mil) on the outstanding US$222mil (RM937mil) senior sukuk issued by Serba Dinamik’s wholly-owned indirect subsidiary, SD International Sukuk Ltd,” it said in a statement.

The coupon payment was due on Nov 9, 2021 and the company confirmed that no payment was made during the 30-day grace period which ended on Dec 9, 2021.

As a result of this default, there is now an increasing likelihood of a cross default trigger under the IMTN and ICP programmes. Should sukuk holders declare an event of default, the ratings of both programmes will be downgraded to DIS,” it said.