RAM Ratings has downgraded to C1(s) from BB2(s) the rating of the RM1.0 billion Sukuk Wakalah (2013/2023) issued by

Published on 23 November 2016

RAM Ratings has downgraded to C1(s) from BB2(s) the rating of the RM1.0 billion Sukuk Wakalah (2013/2023) issued by Al Bayan Holding Company (the Group) through special-purpose vehicle, ABHC Sukuk Berhad. The downgrade is premised on the high likelihood of the Group defaulting on RM100 million of sukuk maturing on 16 December 2016. Al Bayan had failed to meet all scheduled payments into the Finance Service Reserve Account (FSRA) which constitute events of default. In addition, RAM has not been able to obtain satisfactory clarification from Al Bayan on how it proposes to resolve the breach or on plans to repay the full amount outstanding by the maturity date.

The rating remains on Rating Watch with a negative outlook. As events of default have yet to be remedied, the outstanding sukuk may become immediately due and payable if called upon.

As previously highlighted, we view Al Bayan’s liquidity position as pressured, given that short-term debts have substantially increased to fund hefty working-capital requirements following a delay in collections from government projects. As reported in recent news, the Kingdom of Saudi Arabia has set aside SR100 billion to settle amounts it owes to the private sector, envisaged to be completed by year-end. However, as the Group utilises project financing facilities for many of its projects, construction receivables from the Government are paid directly to financial institutions and set off against amounts owing on these facilities.

Looking ahead, the rating may be downgraded to D if Al Bayan defaults on the RM100 million of sukuk maturing on 16 December 2016. Nonetheless, Al Bayan may be able to draw on unutilised financing lines, tap new loan sources or obtain additional funds from its shareholders to repay the full amount outstanding by the maturity date. While we have not been able to obtain any documentation to substantiate external sources of financial flexibility, we note that shareholders had injected additional equity totalling SR94.34 million into the group in 1H FY Dec 2016. As at end-June 2016, Al Bayan’s debts had grown to SR2.13 billion while cash levels had dropped to SR76.70 million (end-December 2015: SR1.96 billion and SR177.15 million, respectively). The Group’s operating cashflow deficit widened further to about SR250 million in 1H fiscal 2016 (FY Dec 2015: SR119.36 million deficit).

Al Bayan is a family-owned, Saudi-based conglomerate, mainly involved in specialised construction of public infrastructure and the supply of a wide range of equipment and IT products and services, primarily servicing the government. ABHC is a special-purpose vehicle incorporated in Malaysia as a conduit to facilitate the Group’s sukuk transaction. Under a Kafalah agreement in favour of ABHC, the Group provides an irrevocable and unconditional guarantee to the sukuk holders. As such, the enhanced rating of the sukuk is based on Al Bayan’s credit profile.

Analytical contact                                        Media contact
Ben Inn                                                          Padthma Subbiah
(603) 7628 1024                                            (603) 7628 1162
ben@ram.com.my                                         padthma@ram.com.my