The Serba Dinamik subsidiary in default of payment of the bond coupon

KUALA LUMPUR (December 10): The indirect wholly-owned subsidiary of engineering solutions provider Serba Dinamik Holdings Bhd, SD International Sukuk Ltd, is reportedly in default of the semi-annual coupon of $ 7 million (approximately $ 29.53 million). RM) on the outstanding $ 222 million Senior Islamic Bond or sukuk issued by SD International, according to analysts at Malaysian Rating Corp Bhd (MARC).

“Coupon payment was due on November 9, 2021 and the company (Serba Dinamik) confirmed that no payments were made during the 30-day grace period that ended on December 9, 2021,” said the MARC rating company.

Following SD International’s non-payment of the US $ 7 million semi-annual coupon, MARC said it downgraded Serba Dinamik’s Islamic Medium Term Notes (IMTN) rating to CIS from BBIS / negative.

MARC said that Serba Dinamik’s Islamic Commercial Paper (ICP) rating remains at MARC-4IS, which is the lowest category under the non-investment category, reflecting the increased risk of default on the outstanding ICP. of 100 million RM.

“Due to this defect [by SD International on the US$7 million coupon payment], there is now an increasing likelihood of cross default triggering in IMTN / ICP programs.

“If the sukuk holders declare an event of default, the grades for both programs will be lowered to DIS,” MARC said.

S&P Global Ratings analysts also downgraded Serba Dinamik on Friday after SD International defaulted on its US $ 7 million semi-annual coupon payment for its US $ 222 million unsecured senior sukuk due in May. 2022.

In a rating released Friday, S&P Global Ratings announced that it had downgraded its issuer credit rating on Serba Dinamik and issued ratings on the company’s senior unsecured sukuks maturing in May 2022 and March 2025 to “D” from ” CC “.

“The downgrade reflects our view that Serba Dinamik will generally default on its debts after the company fails to remediate the payment of its missed coupon within the stated grace period of 30 days.

“The grace period expired on December 9, 2021. We have downgraded the issuer’s credit rating to ‘D’ instead of ‘CC’ because the default on its US $ 222 million sukuk matures in May 2022. is likely to trigger a cross default on its US $ 180 million. sukuk maturing in March 2025 as well as long-term bank facilities.

“We estimate that 70% of Serba Dinamik’s total debt outstanding as of September 30, 2021 could be repaid immediately,” said S&P Global Ratings.

S&P Global Ratings said it believes Serba Dinamik’s limited ability to secure new external funding, coupled with the persistent consumption of cash from its operations, will prevent the company from being up to date on its debt obligations. .

“The non-payment of Serbia’s US $ 7 million coupon Dinamik on its sukuk indicates that the company is unable to meet its debt obligations. After a partial repayment of US $ 500,000 on November 23, the outstanding coupon payment is currently $ 6.5 million.

“In our opinion, the ensuing legal proceedings with the ex-auditor KPMG PLT, the Bursa Malaysia stock exchange and the independent special auditor Ernst & Young Consulting Sdn Bhd will further hamper its access to external capital funding,” said S&P Global Ratings.

In the meantime, S&P Global Ratings has said it expects Serba Dinamik to face a continued cash drain from its working capital-intensive operations over the next 12 months.

“This would further deplete its reported cash balance of RM 290 million as of September 30, 2021. This cash balance is overshadowed by the company’s large RM 1.48 billion debt maturing in the next 12 months,” which is largely made up of RM99 million, syndicated loan amortization payment due in December 2021, Ringgit 100 million of commercial paper and US sukuk 222 million.

“The commercial paper and the sukuk are both due in May 2022. The company also has an upcoming coupon payment on its outstanding US $ 180 million sukuk in March 2022,” S&P Global Ratings said.

At the time of writing on Friday, Serba Dinamik has yet to release a statement regarding SD International’s default on the payment of the semi-annual coupon of US $ 7 million for its outstanding Islamic bond of US $ 222 million.

Serba Dinamik said on its website that the company, through its subsidiaries, is an international energy services group providing integrated engineering solutions to the oil and gas, petrochemical and production industries. electricity in addition to the water, wastewater and utilities sector.

Also read:
MARC downgrades Serba Dinamik’s IMTN rating to CIS

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Elaine R. Knight