KUALA LUMPUR: Fitch Ratings has downgraded Serba Dinamik Holdings Bhd's long-term issuer default rating to "CCC-" from "B-".

Fitch has also downgraded the company's senior unsecured sukuk due May 2022 and March 2025 to "CCC-" from "B-" with a recovery rating of "RR4".

The rating agency said all the ratings were removed from Rating Watch Negative (RWN), which was placed on June 3, 2021.

"The downgrade reflects Serba Dinamik's diminished cash reserves, stretched liquidity and heightened refinancing risk on short-term debt with RM100 million in commercial paper and US$222 million in sukuk, both due in May 2022. 

Serba Dinamik's access to debt funding will continue to face challenges given that the previous auditor requested an independent review, compounded by delays in releasing its audited financial statements.

"The review is ongoing, and it is unclear when it will be finalised and, pending its satisfactory completion, Serba Dinamik has limited time to address its impending maturities," it said in a statement today.

Fitch Ratings said Serba Dinamik's "CCC-" ratings reflect the high refinancing risks surrounding its ability to pay the amortisation amount on its syndicated loan in December 2021 (RM99 million) and extend the RM100 million in commercial paper and US$222 million in sukuk due in May 2022.

"The timing of the completion of its refinancing is uncertain," it said.

Fitch Ratings said that while there will be sufficient cash for the RM99 million amortisation payment on a syndicated loan in December 2021, liquidity will weaken materially.

It said two other key loans due in May 2022 are the RM100 million in commercial paper and the US$222 million in sukuk.

"Cash reserves had declined to RM497 million by end-June 2021 from RM1 billion at end-March.

"We also forecast free cash flow to be negative for next three years because of Serba Dinamik's high working capital requirements, and therefore additional funding for its business will further exacerbate its liquidity position," it added.