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Posted Date: August 24, 2021 MARC has lowered its ratings on Alpha Circle Sdn Bhd’s outstanding RM140 million Senior Sukuk Musharakah to BBIS from BBBIS and RM55 million Junior Sukuk Musharakah to BIS from BBIS. The rating action highlights the ongoing challenges surrounding the hire of foreign labour that has remained significantly affected by measures implemented to contain the COVID-19 pandemic. Among these are the freeze on new worker intake from abroad as well as operational and administrative disruptions due to movement restrictions, culminating in a low issuance volume of permits for foreign workers and slow payment receipts. As a consequence, Alpha Circle’s cash flow has remained weak. The rating downgrades reflect heightened concerns on the company’s ability to meet the upcoming senior sukuk repayment of RM55 million in November 2021. As at end-July 2021, funds in its finance service account (FSA) stood at RM12 million. Alpha Circle is the funding vehicle of NERS Sdn Bhd. We note the foreign worker permit volume was about 1.5 million compared to a forecast of 2.0 million for 12 months ended June 30, 2021. Any improvement in issuance volume would depend on the easing of pandemic measures and timely execution of the government’s foreign worker recalibration programme, although we do not expect sufficient recovery in the coming months. We understand that by November, Alpha Circle would accrue RM30 million in the FSA but would still need to address a substantial shortfall to meet its upcoming payment. It also has additional payments totalling RM85 million Senior Sukuk in 2022 and RM55 million Junior Sukuk in May 2023. MARC has removed the rating from MARCWatch Negative but the outlook remains negative. Further rating actions will depend on how and when the company addresses its current predicament.