RAM Ratings downgrades ratings of MRCB Southern Link’s Senior and Junior Sukuk

Published on 23 November 2012

RAM Ratings has downgraded the long-term ratings of MRCB Southern Link Berhad’s (“MRCB Southern Link” or “the Company”) RM845 million Secured Senior Sukuk (2008/2025) (“Senior Sukuk”) and RM199 million Junior Sukuk (2008/2027) (“Junior Sukuk”) to C3 (from a respective BB3 and C1); both ratings remain on negative Rating Watch. The Company is a funding conduit for the 8.1-km Eastern Dispersal Link Expressway (“EDL” or “the Highway”) in Johor Bahru. Despite the Highway having been opened to the public since 1 April 2012, the Government has announced that the EDL will not begin tolling operations as per the terms of its concession agreement.

The downgrades are premised on MRCB Southern Link’s cash shortfall in meeting the next profit payments on both the Senior and Junior Sukuk on 21 December 2012, should any one of the following fail to materialise before that:

1) Government takeover of the EDL.

2) Implementation of a short-term solution by the Government to address MRCB Southern

     Link’s cash shortfall.

3) Proposed amendment to the terms of the Senior and Junior finance service reserve

    account bank guarantees. The proposed amendments are to allow the Company to draw

    down on the facilities prior to the projected default in December 2012. A Sukukholders

    meeting has been scheduled on 11 December 2012 to agree on the proposed

    amendments.

In relation to the above, we have been informed by MRCB Southern Link that efforts to conclude all 3 fronts, particularly on the implementation of a short-term solution, are ongoing.

Meanwhile, MRCB Southern Link had RM21.3 million of cash holdings as at 15 November 2012, of which RM21.2 million was trapped in the Junior Sukuk Coupon Special Reserve Account. The latter had been pre-funded at the point of issuance and funds can only be withdrawn to meet obligations on the Junior Sukuk. Under the circumstances, MRCB Southern Link has had to rely on an advance of RM5.3 million from its engineering, procurement and construction contractor (a sister company) to meet an interest payment on the RM220 million syndicated transferable term loan that ranks pari passu with the Senior Sukuk.

Media contact

Michael Ti

(603) 7628 1015

michael@ram.com.my