View Credit Analysis Report (605397)

SubcategoryInfrastructure & Utilities - Toll Road
Date Article2021-02-22 00:00:00
TitleMEX II SDN BHD - 2021

MARC has downgraded its ratings on MEX II Sdn Bhd’s RM1.3 billion Sukuk Murabahah Programme to BBIS from BBBIS, and RM150.0 million Junior Bonds to B from BB. The ratings remain on MARCWatch Negative.

The rating of the Junior Bonds is three notches below the Sukuk Murabahah Programme’s rating, reflecting MARC’s notching policy on subordinated instruments in the rating band. 


Slower-than-expected progress in securing liquidity line ahead of upcoming maturities

MEX II’s progress in obtaining a bridge facility and finalising a sukuk restructuring has been slower than expected. The company had initially expected to secure a liquidity line and complete its refinancing process by end-2020. While MEX II is continuing with discussions on refinancing, its liquidity has deteriorated to a level that has heightened default risk.

Increasing likelihood of default 

The downgrade of MEX II’s ratings reflects a significant increase in credit risk where an event of default is highly likely, unless a consent solicitation to defer the upcoming sukuk payment in April 2021 is agreed upon by sukukholders or if a liquidity line is put in place to meet the upcoming obligation. MEX II’s liquidity risk has amplified given increasing uncertainty around its ability to secure financing to ensure sufficient liquidity to meet the RM68.7 million principal and profit payment in April 2021. The company also has RM38.2 million due in October 2021. MEX II is unlikely to be in a position to meet its finance service requirements without additional funding; its cash of around RM7.7 million in its Finance Service Reserve Account (FSRA) as at end-November 2020 is insufficient to cover short-term maturities. 

Key Risks
  • Progress on restructuring slower than expected;
  • Mounting liquidity pressures; and
  • Highly reliant on obtaining external funding, which is subject to significant execution risk.

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