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Rating agencies positive on Serba Dinamik's planned bond buyback

TheStar Fri, Oct 09, 2020 12:54pm - 1 month ago

S&P said on Friday Serba Dinamik's (B+/Stable/--) proposed bond buyback will reduce financing costs and diversify its capital sources.

KUALA LUMPUR: Serba Dinamik Holdings Bhd's proposal to buy back US$100mil (RM430mil) using two long-term bank facilities has received positive response from S&P Global Ratings and Fitch Ratings.

S&P said on Friday Serba Dinamik's (B+/Stable/--) proposed bond buyback will reduce financing costs and diversify its capital sources.

“We expect the proposed transaction to generate interest savings of about RM10mil annually. The proposed transaction, if accepted by investors, will also diversify the funding sources of the Malaysian energy services firm.

“As it stands, just two outstanding foreign-currency sukuk notes comprise close to 60% of the firm's capital structure, ” it said.

S&P expects the proposed buyback will partly address a looming refinancing risk.

To recap, Serba Dinamik proposed to buy back up to US$100mil of principal value of the

US$300mil sukuk due 2022 issued by SD International Sukuk Ltd and US$200mil sukuk due 2025 issued by SD International Sukuk II Ltd.

The sukuk are guaranteed by Serba Dinamik. The offer price for the notes will be set by tender. The offer is not contingent upon a minimum acceptance level by bondholders, nor does the offer contain any changes to the covenants on the notes.

S&P expects Serba Dinamik to apply most of the bank funds to term out part of its US$300mil guaranteed senior unsecured sukuk note maturing in 2022.

“We note that any deviation from this strategy would result in incremental residual refinancing risk for the about RM1.6bil of Serba Dinamik debt due in 2022, ” it said.

Meanwhile, Fitch said Serba Dinamik's (BB-/Stable) cash tender for the notes as opportunistic, following a drop in the bond price over the past six months.

It said the tender offer only addresses about 10% of Serba Dinamik's total debt. However, if successful, it will somewhat improve the group's debt maturity profile.

The bond buyback exercise, funded by bank loans, will only reduce Serba Dinamik's total debt by 1%-2% and trim its interest costs.

“We estimate that Serba Dinamik's had total debt of about RM3.8bil (including proportionate shares of debt in associates as well as factoring) at June 30,2020. Serba Dinamik's liquidity is still adequate to service its debt-related obligations in the next 12 months, with RM1.4bil of cash and short-term maturities of RM535mil, ” Fitch said.

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