Rating of MRCB Southern Link’s sukuk lowered on cash flow concerns

PETALING JAYA: RAM Ratings has downgraded the long-term rating of MRCB Southern Link Bhd’s (MRCBSL), the funding conduit for the Eastern Dispersal Link (EDL), RM845 million Senior Sukuk on insufficient cash to honour its bond payments.

MRCBSL has insufficient cash balance to honour its RM74.6 million of financial obligations due under the sukuk within the next three months, i.e. between Dec 21 and 24.

The ratings agency now has a C1 rating on the debt, down from BB3, with a negative outlook.

The agency said its ratings action is premised on MRCBSL’s inability to collect toll at the 8.62km EDL, which has dwindled its cash reserves.

While negotiations are still ongoing between the EDL’s toll concessionaire – MRCB Lingkaran Selatan Sdn Bhd – and the government 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 is unable to honour its upcoming semi-annual sukuk repayment due between Dec 21 and 24 without any external liquidity support, including the receipt of the financial cash settlement from the government to the concessionaire,” RAM Ratings said.

In the meantime, MRCBSL continues to engage with its sukukholders and sukuk trustee; the sukukholders have granted the company an indulgence on meeting its covenants up to Dec 20. 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.

MRCBSL’s financial commitments are supported by back-to-back payments from MRCB Lingkaran Selatan Sdn Bhd – the concessionaire of the EDL.

“Given the strong credit link between MRCBSL and the concessionaire, we view both companies in aggregate from a credit standpoint,” RAM Ratings said.