Downgrade Leaves SEAsia’s One-Time Best Bond on Brink of Default
(Bloomberg) -- The saga involving Serba Dinamik Holding, whose dollar bond was one of the best performers in Southeast Asia earlier this year, reached a new low on Friday when Fitch Ratings slashed the company’s rating to the brink of default after it failed to pay the coupon on a dollar-denominated 2022 sukuk.
Fitch downgraded the Malaysian engineering company to ‘C’ from ‘CCC-’. Serba Dinamik said in a stock exchange filing on Friday that it missed a $7 million coupon payment due on Nov. 9 but that it would make the payment within the 30-day grace period.
“Failure to make the payment after the grace period will constitute an event of default,” Fitch Ratings said in a statement. Serba Dinamik’s sukuk due in May 2022 plunged nearly 8 cents on Friday to an all-time low of just under 19 cents, according to prices compiled by Bloomberg.
“Serba Dinamik is committed to fulfill the said payment subject to receipt from our customers,” the company said, without elaborating. Its revenue for the three-month period ended June 2021 dropped 16% from the previous year, while net income plunged 90% according to data compiled by Bloomberg.
Asia Dollar Bond Star Brought Low by Auditor Battle in Malaysia
The saga started in May when Serba Dinamik’s auditor KPMG questioned the company’s accounts, which led to the resignation of the accounting firm after Serba Dinamik filed suit against them. Before then, Serba Dinamik’s other dollar denominated sukuk due in March 2025 was Southeast Asia’s best performing dollar note, according to data compiled by Bloomberg.
Shares of Serba Dinamik have been suspended since late October by Bursa Malaysia following the delay by the company in releasing the special independent review, which addresses audit issues flagged by its former external auditor KPMG. The company, in its defense, said the findings of the review were “preliminary” and “inconclusive” to be released. The stock last traded at 35 sen on Oct. 22.
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