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RAM downgrades MRCB Southern Link’s RM845m sukuk

KUALA LUMPUR (September 27): RAM Ratings has downgraded the long-term rating of MRCB Southern Link Bhd’s RM845 million senior sukuk to C1 from BB3 on heightened default risk following the abolishment of toll collections at the Eastern Dispersal Link (EDL) which is being taken over by the government.

“The company’s inability to collect toll from the EDL has dwindled its cash reserves. MRCB Southern Link’s remaining cash balance is insufficient to honour its RM74.6 million of financial obligations due under the sukuk within the next three months,” RAM said in a statement yesterday.

The toll collections at the EDL have been abolished since Jan 1, 2018 pending disposal of the highway by MRCB Southern Link, a unit of Malaysian Resources Corp Bhd (MRCB).

RAM noted that while negotiations are still ongoing between the EDL’s toll concessionaire, MRCB Lingkaran Selatan Sdn Bhd and the government to mutually terminate the 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 Dec 21 and Dec 24, 2018 without any external liquidity support,” the ratings agency said.

Sukuk holders had granted the company an indulgence on meeting its covenants up to Dec 20, 2018, along with consent to not declare an event of default while negotiations are under way. “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,” RAM said.

It also noted that MRCB Southern Link’s financial commitments are supported by back-to-back payments from MRCB Lingkaran Selatan. “Given the strong credit link between MRCB Southern Link and the concessionaire, we view both companies in aggregate from a credit standpoint,” RAM said.
MRCB closed unchanged at 72 sen yesterday, valuing the group at RM3.16 billion.

This article first appeared in The Edge Financial Daily, on Sept 27, 2018.

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