KUALA LUMPUR (June 1): S&P Global Ratings said the timing of Serba Dinamik Holdings Bhd's announced special independent review to resolve issues found in an audit will complicate the company's efforts to refinance nearly RM1.7 billion in debt over the next 12 months.
It has also lowered Serba Dinamik's long-term issuer credit rating and its guaranteed sukuk’s long-term issue ratings to 'B-' from 'B+', and placed the ratings on CreditWatch with negative implications.
The CreditWatch reflects the risk of a downgrade by one notch or more if Serba Dinamik cannot refinance its short-term debt or advance a credible refinancing plan for its sukuk in a timely manner.
“We could also lower the ratings to 'SD' (selective default) if the company undertakes capital market transactions that we consider distressed, such as repurchases below par of outstanding securities in the secondary market,” the rating agency said in a statement.
S&P said Serba Dinamik faces heightened refinancing risk of its US dollar-denominated RM900 million sukuk due May 2022 because of weakened market access due to a pending special independent review.
“We believe Serba Dinamik may face difficulties accessing international and domestic capital markets, at least until the review's resolution. This will consequently complicate Serba Dinamik's ability to fund its operations and to refinance its upcoming debt maturities before May 2022,” it said.
It estimated the company has RM1.7 billion in debt maturities prior to May 2022 — RM600 million comprises short-term facilities reported at end-2020, RM900 million representing the sukuk maturing in May 2022, while the remaining RM200 million is long-term debt for amortisation.
“This deviates from our previous expectation that the company would proactively fund its upcoming working capital requirement while maintaining sufficient liquidity.
“In our opinion, efforts to restore capital providers' confidence in Serba Dinamik's operations are likely to take months, even if the company completes the independent review.
“With less than 12 months from the May 2022 maturity of its sukuk, the limited time frame to both refinance and complete the independent review creates significant uncertainty,” it said.
S&P also highlighted its 'B-' ratings considering that Serba Dinamik may have sufficient cash for operations until May 2022 should the company adopt cash-preservation measures.
According to the company's latest published figures, it had an unaudited cash balance of RM836 million as of Dec 31, 2020, and short-term borrowings of RM807 million.
S&P estimated that about RM600 million of the short-term borrowings are short-term working capital facilities.
“Incorporating in our estimates the RM508 million from the private placement of new shares in February 2021 and RM100 million of commercial paper issued on May 25, 2021, the company should have a cash balance of about RM1 billion as of end-May 2021,” it said.
Furthermore, it believed cost-cutting strategies like reducing capital expenditure and stopping dividends, teamed with rolling over short-term facilities in the near term, will provide sufficient funds for ongoing operations until the company reaches its maturity wall in May 2022.
“Serba Dinamik may be able to sustain its credit quality in line with our 'B-' ratings if it demonstrates improved access to funding and reduces refinancing risk. We aim to resolve the CreditWatch within the next 90 days,” it said.
At noon break, Serba Dinamik fell 24 sen or 21.24% to 89 sen, valuing the company at RM3.56 billion.