KUALA LUMPUR (Oct 30): MARC Ratings has downgraded Zetrix AI Bhd’s (KL:ZETRIX) RM2 billion sukuk programme to C, a rating just above default, indicating a high likelihood of non-repayment and limited capacity by the company to address its financial challenges.

The latest move marks the second rating downgrade in two weeks. 

MARC Ratings said in a statement on Friday any failure by Zetrix AI to make payments due under the sukuk programme would result in a downgrade to D, which indicates payment default.

The latest downgrade follows a sukukholders’ meeting on Oct 23 that ended without a resolution, heightening uncertainty over Zetrix AI’s ability to comply with its covenant obligations.

The rating agency noted that Zetrix AI has yet to remedy its covenant breach or obtain an indulgence from sukukholders, leaving the RM2 billion sukuk programme exposed to the risk of an event of default.

Although a dissolution event has been triggered, MARC Ratings clarified that this does not automatically require immediate full repayment of the outstanding amount under the Islamic medium-term notes (IMTN) programme.

MARC Ratings had earlier downgraded its rating on the sukuk programme to BB+ from AA- on Oct 16.

The rating was first placed on 'MARCWatch Developing' on Sept 18 following a reduction in the shareholding buffer required to comply with a positive covenant stipulating that founder and managing director Wong Thean Soon must remain the group’s single largest shareholder.

Wong now holds a 1.841% stake in Zetrix AI, down from more than 30% before a sharp decline in the share price in late August triggered margin calls on his share-backed financing facilities.

On Oct 4, Zetrix AI’s rating status was revised to 'MARCWatch Negative', reflecting heightened concerns over the company’s transparency and governance, as well as the continued lack of material information needed to assess its credit profile.

The negative watch also reflects uncertainty over the group’s ability to resolve the covenant breach, mounting liquidity pressures relative to its financial obligations and the absence of key governance oversight.

MARC Ratings has flagged mounting liquidity pressures at Zetrix AI citing growing financial claims, uncertainty over funding sources and weaknesses in the group’s corporate governance.

Among the key concerns are reports that the government is pursuing legal action to recover RM314 million in revenue collected on behalf of the Road Transport Department (JPJ) but not remitted, as well as an additional tax assessment of RM353.1 million from the Inland Revenue Board (IRB).

Zetrix AI said it has yet to receive official notification from the government over the JPJ matter, while it has appealed against the IRB’s tax assessment.

The rating agency also highlighted uncertainty over the group’s ability to secure funding, noting that there is no assurance its reported digital assets are readily available or sufficiently liquid to meet its funding needs.

As at end-June, Zetrix AI had RM541.6 million in cash and RM532.88 million in digital assets, including cryptocurrencies, against RM2.19 billion in borrowings and more than RM90 million in trade and other payables and accruals. 

The liquidity concerns are compounded by gaps in the group’s governance structure. Zetrix AI has yet to appoint a new external auditor, while all three members of its audit committee have resigned.

“In MARC Ratings’ view, the absence of both external auditors and an audit committee removes key oversight of the group’s financial reporting and raises uncertainty over the reliability and timeliness of its disclosures,” it said.

TGS TW PLT resigned as Zetrix AI’s external auditor on Sept 28, citing portfolio rationalisation and resource management as the main reasons for its departure.

The group has also seen a series of boardroom exits, with four of its seven directors resigning within a month, leaving only three directors.

The latest departures came on Thursday, when Datuk Othman Semail and Mohaini Mohd Yusof resigned as audit committee members and independent directors. Their resignations came three days after Wong Kok Chau stepped down as the audit committee chairman and independent director.

The remaining directors are managing director Wong Thean Soon, better known as TS Wong, non-independent non-executive director Datuk Mohd Jimmy Wong Abdullah, and non-independent non-executive chairman Datuk Dr Norraesah Mohamad.

Shares of Zetrix AI closed down 1.5 sen or 18.75% at 6.5 sen on Friday, valuing the group at RM495.94 million. The counter has fallen more than 91% since the start of the year.

Read also:
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SC visits Zetrix AI headquarters amid probe, sources say
Govt to sue Zetrix AI over RM314m JPJ arrears
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