Posted Date: February 15, 2022
MARC Ratings has lowered its ratings on Alpha Circle Sdn Bhd’s outstanding RM115 million Senior Sukuk Musharakah to BIS/negative from BBIS/negative and RM55 million Junior Sukuk Musharakah to CIS from BIS/negative.
The downgrades reflect Alpha Circle’s weakened financial position to fully meet its upcoming senior sukuk payment of RM55 million on February 23, 2022. It has a balance of RM22.0 million in its finance service account as at February 15, 2022 and for the shortfall, an indulgence has been granted by sukukholders to defer the shortfall to June 23, 2022.
We note Alpha Circle’s cash flows have not recovered from the pandemic-induced impact on foreign worker hires although there has been some improvement in 4Q2021. The company still has to contend with low issuance/renewal volume of foreign worker permits, that has been compounded by slow payment receipts. For 2021, the annual foreign worker permit volume issued was about 1.4 million compared to a forecast of 2.0 million. Given the current trend in permit issuance volume, there is a high likelihood that the company would not be able to generate sufficient cash flows in time to redeem the remaining outstanding sukuk under the programme. In addition to the deferred payment in June 2022, Alpha Circle has a final senior sukuk redemption of RM60 million in November 2022. If any indulgence for deferment on principal redemptions is given thereafter, the company would need to make good on the deferred payments before the concession expires in May 2023, although we understand that the company is seeking to extend the concession. The junior sukuk amounting to RM55 million will also mature in May 2023.
The current ratings indicate that repayment risk has increased significantly, and any slight further adverse developments will lead to a default.