Sukuk, or Shariah-Compliant Bonds, have a poor record in terms of ethics and defaults in particular. The latest example of this comes from Malaysia, one of the Islamic world’s leading nations when it comes to Shariah-Compliant finance.

MCRB Southern Link, a conglomerate involved in a variety of businesses in Malaysia, including wholesale foodstuffs, has seen its sukuk downgraded repeatedly and the consensus seems to be that the company is eventually going to default…Somehow, the company became involved in a toll road, which the Malaysian government then interfered with…

MRCB Southern Link’s sukuk ratings further lowered

RAM Rating Services Bhd (RAM Ratings) has further downgraded the long-term ratings of MRCB Southern Link Bhd’s RM845 million secured senior sukuk (2008/2025) and RM199 million junior sukuk (2008/2027) to C3 from BB3 and C1 respectively, with a negative outlook.

The company is a funding conduit for the 8.1km Eastern Dispersal Link Expressway (EDL) in Johor Baru, which opened to the public on April 1 this year.
However, the government has since put a ban on collecting tolls for the new highway project.

RAM Ratings’ gloomy assessment are premised on MRCB Southern Link’s cash shortfall in meeting the next profit payments on both the bonds on Dec 21 this year, should any one of the three factors fail to materialise before that.

They comprise the government’s takeover of the EDL, the implementation of a short-term solution by the government to address MRCB Southern Link’s cash shortfall, and a 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,” said the ratings agency in a statement yesterday, adding that a sukuk-holders meeting has been scheduled on Dec 11 to agree on the proposed amendments.

RAM Ratings added that it had been informed by MRCB Southern Link that efforts to conclude all three fronts, particularly on the implementation of a short-term solution, are ongoing.

As at Nov 15 2012, MRCB Southern Link has RM21.3 million of cash holdings, of which RM21.2 million is trapped in the junior sukuk coupon special reserve account.



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