Zetrix AI misses D-Day on RM2bil sukuk breach, default risk looms

KUALA LUMPUR: Zetrix AI Bhd appears to have missed a critical deadline Thursday to address a covenant breach concerning its RM2 billion sukuk program. As of now, the company has not provided any statement on whether it has obtained a waiver from sukuk holders or agreed with the sukuk trustee. If no resolution is reached, Zetrix AI could potentially owe RM2.16 billion – consisting of RM2 billion in principal and RM164.5 million in upcoming coupon payments.

The breach occurred after managing director Wong Thean Soon lost his status as the company’s single largest shareholder following multiple forced share sales due to margin calls on his share-backed financing. His direct and indirect shareholding dropped from nearly 30% to 1.895% as of October 15, contravening the sukuk covenant which required him to maintain the largest shareholder position.

Zetrix AI plans to request sukuk holders’ consent through an extraordinary resolution, potentially including a waiver, if the breach remains unresolved by October 22. Without a waiver, a dissolution event could occur, enabling the sukuk trustee to accelerate repayment of the outstanding amounts. However, the missed deadline does not automatically mean the trustee has demanded immediate repayment or that a default has taken place.

This setback compounds pressure on the group, which recently canceled its proposed interim dividend of 0.25 sen per share, citing the need to conserve working capital amid unforeseen operational costs. The company also faces scrutiny over RM314 million in unremitted collections owed to the Road Transport Department. The financial rating agency MARC has also reduced Zetrix AI’s sukuk rating to BB+IS from AA-IS and maintained a negative outlook, citing deteriorating financial and liquidity conditions, governance issues, and heightened covenant risks.

What happens next, and whether sukuk holders will grant a waiver, are critical uncertainties for investors.