KUALA LUMPUR (Nov 15): S&P Global Ratings has lowered its long-term issuer credit rating on Serba Dinamik Holdings Bhd to 'CC' from 'CCC', with a negative outlook.
In a statement last Friday (Nov 12), S&P said it also lowered the long-term issue rating on the company's guaranteed sukuks to 'CC' from 'CCC'.
The rating agency said the negative outlook reflects the rising threat of a near-term liquidity crunch, given Serba Dinamik's weak access to funding and a time to maturity of less than six months.
S&P said the downgrade is to reflect a heightened risk of default after the company missed a coupon payment of about US$7 million on Serba Dinamik’s US$222 million outstanding Sukuk due May 2022.
According to the terms of the Sukuk agreement, the company has 30 days from the due date of Nov. 9, 2021, to pay the overdue coupon before an event of default is triggered.
“We understand Serba Dinamik intends to take necessary steps to fulfill the payment within the 30-day timeline stipulated under the agreement.
“Still, Serba Dinamik's ability to meet its payment obligations remains subject to favorable business conditions, in our opinion. These include timely collection of customer receipts,” said S&P.
The rating agency said Serba Dinamik has a sizable RM99 million syndicated loan amortisation payment due in December 2021.
Thereafter, it said the company has large maturities due in May 2022, including RM100 million of commercial paper and US$222 million in Islamic bonds (sukuk).
S&P said this dwarfs the company's last unaudited reported cash balance of RM497 million (as of June 30, 2021).
“Serba Dinamik could face persistent cash burn over the next 12 months, which would deplete its cash balance further.
“Moreover, we project the company will generate negative free operating cash flows of up to RM400 million over the 12 months to June 30, 2022, given the high working capital intensity of its business model,” it said.
S&P said delays in the company's statutory audit and uncertainty surrounding Serba Dinamik's special independent review continue to hit efforts to restore investor confidence in its operations.
“Matters have been further complicated after Serba Dinamik took legal action against the Malaysian stock exchange (Bursa Malaysia) as well Ernst & Young Consulting Sdn Bhd. (EY Consulting, which was appointed to undertake the special independent review).
“With less than six months from the May 2022 maturity of the sukuk, the outstanding matters surrounding the 2020 statutory audit create significant uncertainty, in our view,” it said.