MARC Ratings has downgraded its rating on Zetrix AI Berhad’s Islamic Medium-Term Notes (IMTN) Programme of up to RM2.0 billion to BB+_IS from AA-_IS and maintains the rating on MARCWatch Negative.

The rating downgrade reflects the material deterioration in Zetrix AI’s overall credit profile since the previous rating review on 31 October 2025, particularly the continued pressure on the group’s financial and liquidity position, heightened governance and shareholding uncertainties, and increased covenant compliance risk. Between the previous review and the placement of the rating on MARCWatch Developing on 18 September 2026, MARC Ratings conducted a review but was constrained by insufficient information on several material matters, limiting its ability to fully assess the implications on the group’s credit profile.

The placement of the rating on MARCWatch Developing on 18 September 2026, followed by its revision to MARCWatch Negative on 4 October 2026, reflected, among other considerations, uncertainty surrounding the group’s shareholding structure. The decline in founder Wong Thean Soon’s shareholding has resulted in him ceasing to be the issuer’s single largest shareholder, giving rise to a potential breach of Clause 12.1(p) of the Trust Deed. On 16 October 2026, MARC Ratings received confirmation from the trustee regarding the potential breach of the covenant. The issuer has seven days until 22 October 2026 to address this issue, failing which the consent, instructions or direction of the sukukholders through an Extraordinary Resolution would need to be sought. This development represents a material escalation from an earlier risk under assessment to an identified potential covenant breach requiring remediation, and heightens uncertainty over the sukukholders’ eventual course of action.

At the same time, the group’s prospective sources of liquidity and sukuk repayment have become increasingly uncertain. The proposed Nasdaq listing through a merger with a special purpose acquisition company, from which part of the proceeds is intended for sukuk repayment, could be deferred to 1Q2027 from the initial end-2026 target. While the proposed listing could broaden the group’s access to capital, recent developments affecting its business and financial profile could present challenges to its completion and consequently limit the prospective liquidity benefits. The group’s reliance on transactions that remain subject to execution risk provides limited assurance over the timely availability of funds for debt repayment.

The appointment of new external auditors introduces a further element of uncertainty. This is particularly relevant given the group’s substantial capitalised development expenditure, the recoverability of which depends on assumptions regarding future economic benefits. Any reassessment by the incoming auditors could have implications for reported earnings, the carrying value of assets and shareholders’ equity, with potential consequences for leverage and other financial metrics.

Taken together, these developments indicate that the risks identified during the earlier MARCWatch placements have not abated but have instead broadened and, in certain respects, crystallised. The downgrade therefore reflects the cumulative deterioration in Zetrix AI’s credit profile rather than any single development. Maintaining the rating on MARCWatch Negative recognises that significant uncertainties remain and that further downward rating pressure could emerge, particularly if the potential covenant breach is not addressed, expected liquidity sources do not materialise, or subsequent financial information reveals further weakening in the group’s financial position.