MARC downgrades Zetrix AI's sukuk, debt remains on negative watch

KUALA LUMPUR: MARC Ratings has downgraded Zetrix AI Bhd's Islamic medium-term notes (IMTN) programme rating to BB+IS from AA-IS, citing mounting financial and liquidity pressures, governance uncertainties and heightened risk of a covenant breach.

The rating on the RM2 billion IMTN programme remains on MARCWatch Negative, indicating the possibility of further downward rating pressure.

MARC Ratings said the downgrade reflected a material deterioration in Zetrix AI's credit profile since its previous review on Oct 31, 2025, with several risks identified in earlier reviews persisting and intensifying.

The rating agency said that between the previous review and the placement of the rating on MARCWatch Developing on Sept 18, it had conducted a review but was constrained by insufficient information on several material matters, limiting its ability to fully assess the implications on Zetrix AI's credit profile.

Founder Wong Thean Soon's declining shareholding had resulted in him ceasing to be the company's single largest shareholder, potentially breaching Clause 12.1(p) of the trust deed governing the sukuk programme.

MARC Ratings received confirmation from the trustee on Oct 16 regarding the potential covenant breach, with Zetrix AI given until Oct 22 to address the issue.

"This development represents a material escalation from an earlier risk under assessment to an identified potential covenant breach requiring remediation, and heightens uncertainty over the sukukholders' eventual course of action," it added.

The rating agency also flagged uncertainty over the group's ability to secure funds for sukuk repayment, as its proposed Nasdaq listing through a merger with a special purpose acquisition company could be deferred to the first quarter of 2027 from its initial end-2026 target.

"While the proposed listing could broaden the group's access to capital, recent developments affecting its business and financial profile could present challenges to its completion and consequently limit the prospective liquidity benefits," MARC Ratings said.

It added that the group's reliance on transactions that remain subject to execution risks offered limited assurance that funds would be available in time for debt repayment.

Separately, the appointment of new external auditors has introduced further uncertainty, particularly over the recoverability of the group's substantial capitalised development expenditure.

MARC Ratings said any reassessment by the incoming auditors could affect reported earnings, asset values and shareholders' equity, with potential implications for leverage and other financial metrics.

"Taken together, these developments indicate that the risks identified during the earlier MARCWatch placements have not abated but have instead broadened and, in certain respects, crystallised.

"The downgrade therefore reflects the cumulative deterioration in Zetrix AI's credit profile rather than any single development," it said.

It added that further downward rating pressure could emerge if the potential covenant breach remained unresolved, expected liquidity sources failed to materialise or subsequent financial information revealed further weakening in the group's financial position.