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Bond Market News
Serba Dinamik Downgraded by S&P to CCC on Liquidity and Refinancing Risk
August 20, 2021
Malaysia’s Serba Dinamik has been downgraded to CCC from B- by S&P on increasing liquidity risks and funding uncertainty to refinance future maturing debts. Serba has MYR 1.7bn ($401mn) in debt due through May 2022 that includes a $222.2mn 6.3% Sukuk due May 2022. S&P said that Serba’s access to external funding sources can be impeded by uncertainties over a pending special independent review, a statutory audit and an investigation by the Securities Commission of Malaysia. “We believe the risk of a liquidity crunch has increased in the absence of a credible and timely refinancing plan,” said S&P, adding that market confidence in Serba has been shaken with both, its stock and bond prices down 75% and 60-70% respectively. They also mentioned that capital market funding is unlikely in the near term due to its market perception and would take time even after the reviews are conducted.
S&P expects negative free cash flow over the next nine months and that the company’s liquidity sources will cover less than 0.7x near-term liquidity needs through June 2022. Serba’s dollar bonds had plunged ~40% in late May after audit related concerns, post which their external auditor KPMG resigned and was replaced by EY during which time five independent directors resigned. Serba then reported dismal quarterly earnings where profits fell 44% QoQ. Serba was only recently downgraded to B- by S&P in June, with the current downgrade to CCC being their second downgrade in three months.
Serba Dinamik’s 6.997% 2025s and 6.3% 2022s trade at distressed levels of 36.5 and 42.8 respectively.
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