Maju Holdings' unit Bright Focus proposes sukuk buyback after rating downgrade

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KUALA LUMPUR (July 21): Bright Focus Bhd -- a subsidiary of Maju Holdings Sdn Bhd, which is controlled by business tycoon Tan Sri Abu Sahid Mohamed -- is planning a sukuk restructuring that involves the buyback of its current outstanding sukuk of RM1.225 billion at its full nominal or par value.

The company, which holds the concession for the 26km Maju Expressway or Mex via its 96.8%-owned Maju Expressway Sdn Bhd (MEXSB), said it plans to do a sukuk-to-sukuk swap by replacing the existing sukuk with a new sukuk it is proposing to issue.

The move came after RAM Rating Services Bhd (RAM Ratings) recently downgraded Bright Focus' sukuk to BB1 from A1. Bright Focus is wholly owned by Maju Holdings, which is keen on taking over highway operator PLUS Malaysia Bhd. The Edge Malaysia reported early this month, quoting a Maju Holdings spokesperson, that the group has already submitted its proposal to the government.

"Bright Focus Bhd has engaged several international banks to implement the proposed restructuring scheme within the next 90 days, subject to the necessary due diligence by the banks. 

"The current downgrade to BB1 for Bright Focus Berhad is not reflective of the highway itself, but the weak structure of the terms of the sukuk itself. The downgrade is due solely to reduced cash reserves due to unscheduled advances to Maju Holdings. On a standalone basis, the Mex highway is a performing highway from [the] perspective of its ability to meet all its obligation under the current sukuk in a timely manner," Bright Focus said in a statement today.

It also referred to the latest rationale rating report by RAM Ratings, saying the ratings agency had highlighted that the projected cashflows were subject to stress assumptions and that the lowest point in the debt service coverage ratio was 1.20 times, adding that any measure above one indicates the ability to repay obligations in a timely manner.

"Bright Focus Bhd and by virtue of that, Maju Holdings Sdn Bhd, is in a solid financial position to undertake this restructuring programme, which will address the weakness in the current terms of the sukuk. 

"The group is committed to good corporate governance practices and will ensure that sukukholders interests are protected and all obligations are repaid in full in a timely manner. Once the proposed restructuring is completed, the group expects to see an improvement in its rating for the sukuk," it added.

RAM Ratings downgraded the rating of Bright Focus' RM1.35 billion sukuk musharakah (2014/2031) to BB1 from A1 on June 3. On the same day, it placed the sukuk on rating watch, with a negative outlook. 

RAM Ratings said the downgrade was premised on the "severe impairment in Bright Focus' debt-servicing metrics following further unanticipated advances by MEXSB to the ultimate parent company, Maju Holdings", as well as a deterioration in MEXSB's projected annual cashflow. 

It also noted that the unanticipated advances -- although disallowed under the sukuk's transaction terms -- have severely depleted the cash balances of MEXSB, where the MEX is the sole source of cashflow supporting the sukuk's repayment.

The move came after additional advances of RM24.82 million was paid to Maju Holdings between September and November last year, following an earlier RM73 million paid in June 2018 -- which had resulted in a prior rating downgrade of the sukuk from AA2 to A1. "The continued breacxh of the financing terms of the sukuk highlights concerns over areas of financial management policies and corporate governance," said RAM Ratings.

The negative rating watch, meanwhile, was based on legal action being pursued by the trustee, on behalf of the sukukholders, to recover RM97.02 million of advances in 2018. The ratings agency also revealed that a letter of demand had been sent to MEXSB on May 24 this year, requiring the company to return all prohibited advances to date and to reinstate its cash position in 30 days, failing which the sukukholders would be entitled to exercise their right to declare a dissolution event, which is similar to an event of default.

Subsequently, an English daily wrote on July 12, citing sources, that Bright Focus' sukuk holders were pursuing legal actions against the company to recover the advances.

It quoted one of the sukuk holders, which it did not name, as saying that the action was based on a collective decision by the sukuk holders -- among which were Lembaga Tabung Haji, Malayan Banking Bhd, Standard Chartered, Nomura Asset Management, Retirement Fund Inc or KWAP, Amundi, KAF and RHB -- to demand money back from Maju Holdings for wrongful acts and for breaching the bonds' covenants.