KUALA LUMPUR (Dec 10): Engineering-solutions provider Serba Dinamik Holdings Bhd's indirect wholly-owned subsidiary SD International Sukuk Ltd is reported to have defaulted on the latter's US$7 million (about RM29.53 million) semi-annual coupon payment on the outstanding US$222 million senior Islamic bond or sukuk issued by SD International, according to Malaysian Rating Corp Bhd (MARC).
"The coupon payment was due on Nov 9, 2021 and the company (Serba Dinamik) confirmed that no payment was made during the 30-day grace period which ended on Dec 9, 2021," the bond rating agency said.
Following the missed semi-annual coupon payment of US$7 million by SD International, MARC said it has downgraded Serba Dinamik's Islamic Medium-Term Notes (IMTN) rating to CIS from BBIS/Negative.
MARC said 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 RM100 million ICP.
"As a result of this default [by SD International on the US$7 million coupon payment], there is now an increasing likelihood of a cross-default trigger under the IMTN/ICP programmes.
"Should sukuk holders declare an event of default, the ratings of both programmes will be downgraded to DIS," MARC said.
S&P Global Ratings also on Friday downgraded Serba Dinamik's rating after SD International defaulted on its US$7 million semi-annual coupon payment for its outstanding US$222 million senior unsecured sukuk due in May 2022.
In a note on Friday, S&P Global Ratings said it has lowered its issuer credit rating on Serba Dinamik and issue ratings on the company's guaranteed senior unsecured sukuks due May 2022 and March 2025 to "D" from "CC".
"The downgrade reflects our view that Serba Dinamik will generally be in default of its debt obligations after the company failed to cure 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$222 million sukuk due May 2022 is likely to trigger a cross-default on its US$180 million sukuk due March 2025 as well as long-term banking facilities.
"We estimate 70% of Serba Dinamik's total outstanding debt as of Sept 30, 2021 could be liable for immediate repayment," S&P Global Ratings said.
S&P Global Ratings said it believes Serba Dinamik's constrained ability to secure fresh external funding, coupled with persistent cash burn from its operations, will result in the company not being current on its debt obligations.
"Serba Dinamik's missed US$7 million coupon payment on its sukuk indicates that the company is unable to remain current on its debt obligations. After a partial repayment of US$500,000 on Nov 23, the current outstanding coupon payment due is US$6.5 million.
"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 will further hinder its access to external capital funding," S&P Global Ratings said.
In the meantime, S&P Global Ratings said it expects Serba Dinamik 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 RM290 million as of Sept 30, 2021. This cash balance is dwarfed by the company's sizeable RM1.48 billion of debt maturing over the next 12 months, which is largely made up of a RM99 million syndicated loan amortisation payment due in December 2021, RM100 million of commercial paper and the US$222 million sukuk.
"Both the commercial paper and sukuk are due in May 2022. The company also has an upcoming coupon payment due on its outstanding US$180 million sukuk in March 2022," S&P Global Ratings said.
At the time of writing on Friday, Serba Dinamik has yet to issue a statement regarding SD International's default on the latter's US$7 million semi-annual coupon payment for its outstanding US$222 million Islamic bond.
Serba Dinamik said on its website that the company, through its subsidiaries, is an international energy services group providing integrated engineering solutions to the oil and gas, petrochemical and power generation industries besides the water, wastewater and utilities sector.