MARC Ratings downgrades Zetrix AI sukuk over covenant compliance risk

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Zetrix AI sukuk rating downgrade

Highlights

MARC Ratings downgraded Zetrix AI's RM2 billion sukuk programme to C from BB+, maintaining its 'MARCWatch Negative' status over covenant compliance risk.
Zetrix AI has yet to remedy its covenant breach or obtain a waiver from sukuk holders, leaving the sukuk programme exposed to default risk.
The second downgrade in two weeks, following the downgrade to BB+ from AA- on 16 Oct, signals a deterioration in perceptions of risk surrounding Zetrix AI's financial position.

This article was translated from the original. Read the original version by our correspondent here.

Rating downgrade follows sukuk holders' meeting

As reported by The Edge Malaysia, citing MARC Ratings in a statement, the ratings agency downgraded Zetrix AI's RM2 billion sukuk programme to C from BB+, while maintaining its "MARCWatch Negative" status. The downgrade reflects growing uncertainty over the company's ability to meet its covenant obligations following a sukuk holders' meeting on 23 Oct that ended without a resolution.

MARC Ratings said Zetrix AI has yet to remedy its covenant breach or obtain a waiver from sukuk holders. As a result, the RM2 billion sukuk programme remains exposed to the risk of a default event.

The agency also explained that although a liquidation event has been triggered, this does not automatically require immediate full repayment of the outstanding amount under the Islamic medium-term notes (IMTN) programme.

Rising risk signals for debt markets

A C rating is among the lowest rating categories and indicates a high likelihood of non-repayment, as well as Zetrix AI's limited capacity to address its financial challenges. The signal could increase investor scrutiny of the company's credit profile and its ability to manage existing financing obligations.

This is the second downgrade in two weeks, following MARC Ratings' downgrade of Zetrix AI to BB+ from AA- on 16 Oct. The series of rapid reviews signals a significant deterioration in perceptions of risk surrounding the company's financial position and covenant compliance.

In our earlier article on Zetrix AI's and MyEG's suspension as JPJ collection agents, we explained how the issue of more than RM200 million in payments that had yet to be remitted put pressure on the company's operations and financial position. We also highlighted market concerns over the RM2 billion sukuk—including compliance with covenants related to TS Wong's shareholding and MARC's monitoring status—which add to the risk to the company's credit profile.

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