PETALING JAYA: Malaysian Rating Corp Bhd (MARC) said it would be premature for the credit rating agency to remove Matang Highway Sdn Bhd from its MARCWatch Negative list before the latter's sinking fund was fully funded by February 2011.
The purpose of the MARCWatch placement is to highlight a potential shortfall and that there has been a departure from the scheduled build of the sinking fund, MARC told StarBiz in an email statement yesterday.
It said the Bursa Malaysia filing by Zecon Bhd, which is Matang's holding company, was likely aimed at providing assurance that progress payments from Jabatan Kerja Raya (JKR) Sarawak would come in and might be relied upon to cover the present shortfall in the sinking fund account prior to the maturity of the sukuk.
If Zecon receives the full payment of claims before February 2011, they will be in a position to redeem the sukuk in full (in May 2011). The default risk on the sukuk diminishes and MARC will remove the MARCWatch Negative thereafter, it said.
MARC said that a covenant breach would occur if the sinking fund was not fully funded in February 2011 as per the terms of the sukuk.
We may then downgrade it to C if there is a covenant breach in February 2011 and to D in May 2011 if there is a default on the final maturity date of the sukuk, it added.
To recap, MARC placed its AIS rating on Matang's RM70mil sukuk musharakah on MARCWatch Negative on Monday, saying the rating reflected concern about Matang's ability to adequately meet the May 2011 redemption of its remaining RM15mil sukuk. The payment obligations under the fully amortising sukuk are primarily funded by progress payments collected from JKR Sarawak under a turnkey contract to construct the Matang highway, linking Kuching to Sarawak's new administrative centre, according to MARC. It added that Matang needed another RM1.898mil to meet the portion of its upcoming payment obligations under the sukuk which were currently not covered by existing balances in designated accounts, namely the sinking fund account and the finance service ratio account.
However, Zecon Bhd responded by saying that it was confident of its ability to meet the May 2011 redemption deadline of its remaining RM15mil sukuk once it has received two progress payments from JKR Sarawak.
The company also said in a Bursa Malaysia filing on Wednesday that it was awaiting payments of two duly certified claims totalling RM5.55mil from JKR Sarawak.
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Matang’s sukuk on MARCWatch Negative
PETALING JAYA: Malaysian Rating Corp Bhd (MARC) has placed its AIS rating on Matang Highway Sdn Bhd's RM70mil sukuk musharakah on MARCWatch Negative.
MARC said in a statement the rating action reflected concern about Matang's ability to adequately meet the May 2011 redemption of its remaining RM15mil outstanding sukuk. Matang is a wholly-owned single-purpose funding vehicle of Zecon Bhd.
Its payment obligations under the fully-amortising sukuk are primarily funded by progress payments collected from Jabatan Kerja Raya Sarawak under a turnkey contract to construct a highway linking Kuching City to Sarawak's new Federal Administrative Centre (Matang route project).
Matang needs additional liquidity of RM1.898mil to meet the portion of its upcoming payment obligations under the sukuk which are currently not covered by existing balances in designated accounts.
The construction progress on the second and final phase of the Matang route project continues to be substantially behind schedule, MARC said.
MARC said it understood that Zecon was currently negotiating a RM31.4mil debt restructuring.
Given Zecon's own financial difficulties, MARC regards the likelihood of sufficient and timely financial support from Zecon as uncertain, it said.
MARC said the rating would be lowered should Matang not meet the revised scheduled payments into the sinking fund account (SFA) by Dec 19.
Conversely, if it's SFA and finance service reserve account balances are sufficient to fully fund the final redemption of the sukuk by February 2011, MARC will remove Matang's rating from MARCWatch Negative.
