Cendana Sejati expected to default on Senior Sukuk obligations

Published on 27 Jan 2021.

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RAM Ratings expects Cendana Sejati Sdn Bhd (the Issuer) to default on RM10.28 million of profit and principal obligations on its Senior Sukuk due on 19 February 2021. A total of RM70 million of Senior Sukuk remains outstanding under its RM360 million Senior Sukuk Murabahah Medium Term Notes Programme (Senior Sukuk Programme). The Senior Sukuk Programme is currently rated C3/Negative. 

Based on the latest available information, monthly collections from the underlying portfolio of consumer receivables – serviced through salary deductions from borrowers comprising civil servants – remained unchanged with only about 3% of monthly scheduled instalments collected. The collections, combined with available cash balances of RM258,458 in the Issuer’s designated accounts as at 25 January 2021, is insufficient to meet the Senior Sukuk obligations due in February 2021. This is notwithstanding the recent transfer for collections up to December 2020 by the appointed collection agent, Coshare Holdings Berhad, a related party. Transfers were delayed due to the reconciliation of over-the-counter collections.

Subsequent to our previous rating announcement on Cendana Sejati, dated 11 February 2020 (click here), Coshare Holdings had transferred a cumulative RM874,820 to the Issuer’s collection account between March 2020 and January 2021. The cash helped Cendana Sejati narrowly evade a default on profit obligations under the Senior Sukuk Programme in October and November 2020. Further, there has been no material progress in discussions between Masraf Al Barakah Sdn Bhd (the Originator and Servicer under the transaction) and sukukholders to restructure the Senior Sukuk Programme. Information from Masraf has generally been limited and not been timely. 

Given the severity of impaired collections, the transaction has not met the Liquidity Reserve Account minimum balance since 2Q 2020.  Such a breach is tantamount to a Trigger Event under the terms of the transaction and prohibits the Issuer from issuing any additional sukuk. A Trigger Event, if unremedied beyond the 30-day grace period, constitutes a Dissolution Event, although sukukholders have not declared it as such. We will continue to monitor the transaction and expect to downgrade the Senior Sukuk Programme’s rating to D if a Dissolution Event is declared or if Cendana Sejati fails to make the profit and/or principal payment as scheduled.

Analytical contact
Lim Chern Yit
(603) 3385 2528

Media contact
Padthma Subbiah
(603) 3385 2577

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Published by RAM Rating Services Berhad
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Ratings on Cendana Sejati Sdn Bhd