KUALA LUMPUR: Malaysian Rating Corp Bhd (MARC) has placed the AIS rating of ZECON BHD [] special purpose vehicle Matang Highway Sdn Bhd's RM70 million sukuk musharakah on MARCWatch Negative.
'The rating action affects RM15.0 million of outstanding Sukuk,' said the rating agency on Monday, Dec 13.
Matang's payment obligations under the fully-amortising Sukuk were primarily funded by progress payments collected from the Sarawak Public Works Department.
This was under a turnkey contract to build the Matang route project linking Kuching to Sarawak's new Federal Administrative Centre.
'The MARCWatch Negative placement reflects concern about Matang's ability to adequately meet the May 2011 redemption of its remaining outstanding Sukuk,' it said.
MARC said Matang needed additional liquidity of RM1.898 million to meet the portion of its upcoming payment obligations under the Sukuk currently not covered by existing balances in designated accounts.
Work on the second and final phase of the Matang route project continues to be substantially behind schedule, said the rating agency.
Zecon had given its commitment to fund the gap between the available liquidity in designated accounts for the Sukuk and the upcoming final redemption.
'Nonetheless, MARC understands that Zecon is in the midst of negotiating a RM31.4 million debt restructuring. Given Zecon's own financial difficulties, MARC regards the likelihood of sufficient and timely financial support from Zecon as uncertain,' it said.
Work on the second and final phase of the Matang route project (revised Matang route or RMR) was 27.0% as of Aug 31, 2010 against revised scheduled progress of 82.8%.
MARC said Zecon was seeking a third extension of time for completion of the RMR to March 2012; the second extension had pushed back the project completion date to end-July 2011.
'Given that the new estimated completion date is now well beyond the Sukuk term, MARC believes that it is now more challenging than previously anticipated for Matang to achieve cash flows required to meet the'' final Sukuk redemption,' it said.
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Matang had reduced its monthly payments into the sinking fund account (SFA) with the approval of sukukholders as a result of its lower actual cash generation.
The upcoming sukuk redemption is 65% funded based on the RM9.8 million balance in Matang's SFA as at Dec 10, 2010. However, this is still short of its November 2010 SFA required balance of RM10.5 million.
Matang's revised sinking fund payment schedule requires monthly payments of RM1.5 million each to be deposited into the SFA from September 2010 through February 2011 to fully fund the upcoming Sukuk redemption by end-February 2011.
'Meanwhile, the prospects for the collection of a disputed RM11.0 million claim arising in respect of works on the first phase of the Matang Route Project (Original Matang Route) appear to be increasingly uncertain,' said MARC.
Possible internal liquidity sources to fund the SFA include outstanding RMR CONSTRUCTION [] progress claims amounting to RM8.4 million for the months of August, September and October and/or future RMR work-in-progress billing for the remaining four-month period from November 2010 through February 2011.
There is also an estimated RM2.9 million buffer maintained in Matang's finance service reserve account (FSRA) over and above the required equivalent amount of two semi-annual profit payments. (The FSRA is funded to the extent of RM3.7 million as of Dec 10, 2010.)
MARC said the rating would be lowered should Matang not meet the revised scheduled payments into the SFA by Dec 19, 2010.
Conversely, if it's SFA and FSRA balances were sufficient to fully fund the final redemption of the Sukuk by February 2011, MARC will remove Matang's rating from MARCWatch Negative.
'The rating action affects RM15.0 million of outstanding Sukuk,' said the rating agency on Monday, Dec 13.
Matang's payment obligations under the fully-amortising Sukuk were primarily funded by progress payments collected from the Sarawak Public Works Department.
This was under a turnkey contract to build the Matang route project linking Kuching to Sarawak's new Federal Administrative Centre.
'The MARCWatch Negative placement reflects concern about Matang's ability to adequately meet the May 2011 redemption of its remaining outstanding Sukuk,' it said.
MARC said Matang needed additional liquidity of RM1.898 million to meet the portion of its upcoming payment obligations under the Sukuk currently not covered by existing balances in designated accounts.
Work on the second and final phase of the Matang route project continues to be substantially behind schedule, said the rating agency.
Zecon had given its commitment to fund the gap between the available liquidity in designated accounts for the Sukuk and the upcoming final redemption.
'Nonetheless, MARC understands that Zecon is in the midst of negotiating a RM31.4 million debt restructuring. Given Zecon's own financial difficulties, MARC regards the likelihood of sufficient and timely financial support from Zecon as uncertain,' it said.
Work on the second and final phase of the Matang route project (revised Matang route or RMR) was 27.0% as of Aug 31, 2010 against revised scheduled progress of 82.8%.
MARC said Zecon was seeking a third extension of time for completion of the RMR to March 2012; the second extension had pushed back the project completion date to end-July 2011.
'Given that the new estimated completion date is now well beyond the Sukuk term, MARC believes that it is now more challenging than previously anticipated for Matang to achieve cash flows required to meet the'' final Sukuk redemption,' it said.
''
Matang had reduced its monthly payments into the sinking fund account (SFA) with the approval of sukukholders as a result of its lower actual cash generation.
The upcoming sukuk redemption is 65% funded based on the RM9.8 million balance in Matang's SFA as at Dec 10, 2010. However, this is still short of its November 2010 SFA required balance of RM10.5 million.
Matang's revised sinking fund payment schedule requires monthly payments of RM1.5 million each to be deposited into the SFA from September 2010 through February 2011 to fully fund the upcoming Sukuk redemption by end-February 2011.
'Meanwhile, the prospects for the collection of a disputed RM11.0 million claim arising in respect of works on the first phase of the Matang Route Project (Original Matang Route) appear to be increasingly uncertain,' said MARC.
Possible internal liquidity sources to fund the SFA include outstanding RMR CONSTRUCTION [] progress claims amounting to RM8.4 million for the months of August, September and October and/or future RMR work-in-progress billing for the remaining four-month period from November 2010 through February 2011.
There is also an estimated RM2.9 million buffer maintained in Matang's finance service reserve account (FSRA) over and above the required equivalent amount of two semi-annual profit payments. (The FSRA is funded to the extent of RM3.7 million as of Dec 10, 2010.)
MARC said the rating would be lowered should Matang not meet the revised scheduled payments into the SFA by Dec 19, 2010.
Conversely, if it's SFA and FSRA balances were sufficient to fully fund the final redemption of the Sukuk by February 2011, MARC will remove Matang's rating from MARCWatch Negative.
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