MARC notes with heightened concern the recent developments in Serba Dinamik Holdings Berhad (Serba Dinamik) since placing the company’s Islamic programmes ratings on MARCWatch Negative at end-May 2021. The MARCWatch action then was taken pending clarity on issues raised on the group’s annual accounts for financial year 2020. The rating agency had expected the audit issues to be resolved by end-October 2021 with the appointment of Nexia SSY PLT and the independent review conducted by EY Consulting Sdn Bhd. This would have allowed the rating agency to take a clearer rating stance.

However, the concern on the protracted delay to resolve Serba Dinamik’s aforementioned issues has now been compounded by the missed semi-annual coupon payment on the outstanding USD222 million senior sukuk issued by its wholly-owned indirect subsidiary, SD International Sukuk Ltd. The coupon payment became due on November 9, 2021. MARC has been informed by the issuer that it is seeking to make good on the payment within the 30-day grace period before an event of default is declared.

Nonetheless, in light of this development, the rating agency notes that a cross default could be triggered on the borrowings under the Islamic Commercial Papers and Islamic Medium-Term Notes Programme (ICP/IMTN programmes) under which the outstanding of RM100 million ICPs is due in May 2022.

The missed coupon payment signifies liquidity stress faced by Serba Dinamik. On this basis, MARC views that Serba Dinamik’s ability to meet its financial obligations will continue to be strained. Accordingly, the rating agency has removed the ratings of the ICP/IMTN programmes from MARCWatch Negative and downgraded the ratings to MARC-4_IS/BB_IS. The outlook on the IMTN programme is negative.

MARC will reassess the ratings upon a review of the statutory audited accounts, which will be issued by the extended deadline of November 30, 2021, and other relevant findings.

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