YNH Property quick update – The clock is ticking for the troubled property developer

In our previous article we highlighted the issue surrounding YNH, particularly on the qualified opinion on their financial statement regarding their joint venture and turnkey contracts for property development work.  

Read more at: Our view on YNH Property Berhad

Breach of obligations

Since then, the group has requested another extension for their special independent review, raising concerns over the validity of their joint venture and turnkey contracts. No announcements have been made on the independent review as the timeline has yet again been revised to a later date. Aside from that, the group faces another looming deadline on their obligations to sukuk holders.

To provide some context, the group has breached their obligation to build up their Security and Principal Account (SPA) for the  YNHBMK 5.500% 28Feb2025 Corp (MYR) according to the build-up schedule below.

Table 1: Build-up schedule under the IMTN Sukuk Wakalah Programme

So far, the issuer has managed to meet the first month’s build-up of RM6.12 million but have subsequently missed the following month’s build-up which was due on the 28 March 2024. As such, the trustee has given an extension to YNH to remedy the shortfall by 26 April 2024  they have yet to remedy the shortfall in the account.

As the title suggests, the clock is ticking for YNH Property to remedy their shortfall by 26 April, failing which a Dissolution Event will occur. To briefly explain, a Dissolution Event would mean that all sums payable under the sukuk are made immediately due. Following that, the sukuk holders will have recourse to the secured properties and will be able to liquidate the secured properties to repay the sum payable to sukuk holders.

There may be a possibility that the issuer may remedy the shortfall by the deadline and effectively avoid a Dissolution Event. However, we opine that even if they do eventually remedy the shortfall, it will not be last time they delay as they remain cash-strapped. Nevertheless, any increase in build-up in the SPA will be a positive sign for holders as it represents payment for the sukuk and will add to the recovery value in a worst-case scenario.

Teetering on the brink of default

A look at their financials sheds some light on their overall financial condition as we see their recent quarter ending 31 December 2023 recording one of the group’s worst performances. Revenue for 2Q24 FYE June 2024 was at a low of RM14.3 million representing a 72% decline from the same period last year.

The SPA build-up requires RM6.12 million monthly and the company seem to be unable to fork out the cash for it, despite their reported RM2.5 billion in total assets. This may be due to their poor liquidity with only RM18 million cash balances in December 2023. Similarly, their cash flow remains poor in the recent half, reporting a -RM6 million cash flow from operations and an overall -RM29.4 million decrease in cash.

The group has had some positive developments with the sale of 163 Retail Park – a key investment property for RM215 million which can be seen as a positive sign for sukuk holders. However, half of proceeds will mainly be used to redeem a property charged to Public Bank and the other half will mainly be used for working capital, leaving RM30 million for repayment of other borrowings. While it may reduce their overall debt, the proceeds don’t seem to be sufficient for the upcoming maturity of their sukuk and the coming call date of their perpetual. Further asset sales are also in their pipeline, but we believe will also be similarly pledged as collateral for other borrowings.

Our view on the sukuk

Table 2: YNH Issuances

YNHBMK 5.500% 28Feb2025 Corp (MYR) is currently in a technical default and whether or not it eventually faces a Dissolution Event rest solely on the group’s ability to meet the deadline and consistently build-up the SPA as scheduled. If a Dissolution Event for the 2025 sukuk happens, a cross default will also be triggered for YNHBMK 5.900% 26Feb2027 Corp (MYR).

For the perpetuals, as the group overall financials and credit remain poor, we see that they will not be able to redeem YNHBMK 6.850% Perpetual Corp (MYR) - Tranche 1 in 4 months as we don’t see them being able to pay the RM263 million. As it is a perpetual, the issuer is allowed to defer payments indefinitely, and the only hope for holders to accelerate payment of the principal would be under an Enforcement Event where a court order is made or an effective resolution is passed for the liquidation or winding up of the Issuer. Therefore, if a Dissolution Event happens then the perpetual holders will also be able to call for an Enforcement Event.

The sukuk secured up to 1.5x with pledged lands does provide some, if not a full recovery for investors, depending on the eventual sale. However, sukuk holders will still have to wait for the winding-up process to conclude before recovering their principal. This may take 9 months or more to complete.

We will keep a close eye on YNH and post further updates of any material events for sukuk holders.

Declaration:  For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a NIL position in the abovementioned securities.