RAM downgrades MRCB Southern Link’s Senior Sukuk, maintains negative rating watch

KUCHING: RAM Ratings has downgraded the long-term rating of MRCB Southern Link Bhd’s (MRCB) RM845 million Senior Sukuk to C1 from BB3 whilst maintaining the Rating Watch on the issue rating with a negative outlook.

“Our rating action is premised on the heightened default risk of the sukuk following the abolishment of toll collections at the 8.62km Eastern Dispersal Link) since January 1, 2018, and the takeover of the Expressway by the government,” it said in a release.

The company’s inability to collect toll from the Expressway has dwindled its cash reserves, RAM observed, noting that MRCB’s remaining cash balance is insufficient to honour its RM74.6 million of financial obligations due under the sukuk within the next three months, namely between December 21 and 24, 2018.

While negotiations are still ongoing between the EDL’s toll concessionaire – MRCB Lingkaran Selatan Sdn Bhd – and the govenrment to mutually terminate the Expressway’s Concession Agreement and determine a final settlement amount, no formal agreement has been inked to date.

“We have maintained the negative Rating Watch on the sukuk to reflect its potential downgrade to D if the Company were to be unable to honour its upcoming semi-annual sukuk repayment due between December 21 and 24, 2018 without any external liquidity support, including the receipt of the financial cash settlement from the GoM to the concessionaire,” it forewarned.

“In the meantime, MRCB continues to engage with its sukukholders and sukuk trustee; the sukukholders have already granted the company an indulgence on meeting its covenants up to December 20, 2018.

“This comes alongside their consent to not declare an event of default while negotiations are underway. Should negotiations conclude within the next three months, the sukuk is expected to be redeemed early upon the receipt of the cash settlement amount by the toll concessionaire.”