MARC Cuts Zetrix AI Sukuk to C as Payment Risks and Governance Gaps Mount

RM2 Billion Sukuk Faces Rising Repayment Risk

MARC Ratings has cut Zetrix AI Bhd's RM2 billion sukuk programme to C, just above its payment default rating, after an October 23 meeting with sukukholders ended without an agreement to resolve a breach of financing conditions. It is the programme's second downgrade in two weeks, following a fall from AA- to BB+ on October 16.

The Malaysian digital services company, formerly known as MyEG Services Bhd, faces a combination of debt obligations, government revenue claims, a tax assessment and gaps in financial oversight. Its next scheduled sukuk payment is RM214 million in March 2027.

Zetrix AI says it has made every scheduled sukuk payment so far. MARC says any failure to make payments due under the programme would lead to a downgrade to D, indicating payment default. The C rating signals a high likelihood of nonpayment and limited capacity to resolve financial difficulties.

The immediate problem began with a condition requiring founder and managing director Wong Thean Soon to remain the company's single largest shareholder. Forced sales of shares pledged against his personal financing reduced his stake sharply, leaving that condition unmet.

A contractual dissolution event has now been triggered, but the company and MARC say this does not automatically require immediate repayment of the entire outstanding sukuk. Existing programme terms remain in force because holders passed no resolution at their meeting. Zetrix AI has neither remedied the breach nor secured permission from holders to leave it unresolved.

How a Shareholding Collapse Became a Debt Problem

Wong held more than 30% before a steep decline in Zetrix AI's share price in late August triggered margin calls. A margin call occurs when a lender demands more security or repayment because the shares supporting a loan have lost value. Banks can sell those shares if the borrower cannot meet the demand.

Those forced sales reduced Wong's holding to 1.841%. An earlier disclosure put his combined direct and indirect interest at 1.895% on October 15. The financing covenant required him to remain the largest shareholder, making the ownership change a problem for the sukuk programme as well as for Wong personally.

A covenant is a promise written into a financing agreement. Some cover financial measures, such as debt levels, while this one concerns who owns the company. Breaking such a promise can give investors contractual rights even while scheduled payments continue.

Sukuk are instruments used to raise money under Islamic financing arrangements. Investors receive payments according to the agreed structure. Zetrix AI's obligations comprise RM2 billion in outstanding principal and RM164.5 million in future coupon payments, bringing the stated total to RM2.1645 billion.

The company had until October 22 to remedy the breach. The following day's meeting produced no agreement. Zetrix AI says another meeting will be arranged, but no date has been fixed.

The Dates Behind the Downgrades

MARC's actions trace a deterioration from concern about the ownership condition to wider doubts about liquidity, disclosure and governance. The sequence also shows how quickly the company's options have narrowed.

• Late August: Falling share prices triggered margin calls and forced sales of Wong's pledged shares.
• September 18: MARC placed the programme on MARCWatch Developing after the shareholder buffer required by the covenant weakened.
• September 28: External auditor TGS TW PLT resigned, citing portfolio rationalisation and resource management.
• October 4: MARC changed the watch status to Negative, citing concerns including transparency, liquidity and governance.
• October 16: MARC downgraded the programme from AA- to BB+.
• October 19: Zetrix AI withdrew a planned interim dividend to conserve about RM20 million.
• October 22 and 23: The deadline to remedy the covenant breach expired, followed by a sukukholders' meeting that reached no resolution.
• October 29: Two more independent directors resigned, leaving the company without an audit committee.

The latest C rating follows that failed meeting and the continuing absence of a solution. MARC's concerns now extend beyond the shareholding condition to the company's ability to obtain funding and provide reliable financial information.

No Missed Payment, but No Agreement Either

Zetrix AI's position is that the dissolution event has not required it to repay all outstanding sukuk immediately. In its response to Bursa Malaysia's queries, the company described its payment record:

The company has made all payments due under the sukuk programme in accordance with the stipulated payment schedule.

The company also said it would announce immediately if a payment default occurred. Its current challenge is to resolve the contractual breach while preparing for the RM214 million payment due in March 2027.

For sukukholders, a dissolution event creates a situation governed by the programme's contractual procedures. Whether the full outstanding amount becomes due depends on those terms and the steps taken under them. MARC says the programme remains exposed to the risk of an event of default because the breach has neither been corrected nor covered by an indulgence from holders.

An indulgence would mean holders agreeing to give the company some relief from enforcing the condition. The October 23 meeting delivered no such agreement, leaving the company to continue discussions with the trustee and investors.

Cash and Digital Assets Face Competing Demands

Zetrix AI reported RM541.6 million in cash and RM532.88 million in digital assets, including cryptocurrencies, at the end of June. Against those assets, it had RM2.19 billion in borrowings and more than RM90 million in trade and other payables and accruals.

Cash alone was equivalent to about 24.7% of those borrowings. Adding the reported digital assets gives RM1.07448 billion, or about 49.1% of borrowings. MARC questioned whether the digital assets were readily available or sufficiently liquid to meet funding needs. Liquidity means how easily an asset can be turned into money that can actually be used to pay a bill.

The March payment of RM214 million equals about 39.5% of the cash balance reported at the end of June. That comparison shows the size of the payment against a dated financial snapshot; subsequent spending, receipts and other commitments will determine the funds available when it falls due.

Government revenue claims and the additional tax assessment create further pressure. Their combined stated amount is RM667.13 million, compared with the RM541.6 million cash balance at the end of June. The company disputes or is seeking clarification on those matters, which involve separate obligations and processes.

Government Seeks RM314 Million in Collections

Transport Minister Anthony Loke said the government was pursuing legal action against MyEG Sdn Bhd and Zetrix AI over RM314 million in revenue collected for the Road Transport Department between May 19 and September 30 but not remitted.

Speaking during the Transport Ministry's Budget 2027 debate in the Dewan Rakyat, Loke described the government's response:

The government is in the process of taking legal action, including a civil lawsuit, against the companies.

The Finance Ministry had issued more than 30 notices before Loke demanded immediate settlement on October 5. The Road Transport Department, also known as JPJ, suspended Zetrix AI and MyEG as collection agents from that date. Zetrix AI said it had yet to receive official notification about the legal action concerning those collections.

Loke said reinstatement would depend on settling the outstanding collections and meeting further conditions, including payments directly into government accounts. For customers, JPJ services remain available at counters, through the MySikap portal and MyJPJ app, and through other appointed agents.

The ministry and JPJ are upgrading those digital services to reduce reliance on outside collection agents. Officials are also discussing a Treasury petty receipt account that would send collections straight into government accounts rather than through an agent's account.

Other proposed safeguards include automatically halting transactions when agents fail to transfer collections within 10 days and requiring guarantees from their parent companies. These changes would alter how agents handle public money, rather than simply adding another demand for late payment.

A Separate RM353.13 Million Tax Assessment

MyEG Sdn Bhd, a wholly owned Zetrix AI subsidiary, has also received an additional tax assessment of RM353.13 million for the years of assessment 2021 to 2023. The company says it has appealed.

The assessment comprises RM333.11 million in additional income tax relating to transfer pricing and RM20.02 million in deemed interest and penalties. Transfer pricing concerns the prices used in transactions between related companies, which affect how taxable income is allocated.

The government has also filed a civil suit against MyEG concerning the tax matter. This is a separate proceeding from the government's planned action over JPJ collections, adding another demand on the group's finances and management attention.

MARC cited the growing financial claims and uncertainty about funding sources among its concerns. The tax appeal, negotiations with sukukholders and settlement of the revenue collections now sit alongside the company's ordinary operating and financing needs.

Auditor and Audit Committee Vacancies Weaken Oversight

Zetrix AI has lost four of its seven directors during October and all three members of its audit committee. Independent directors Datuk Othman Semail and Mohaini Mohd Yusof resigned on October 29, citing personal commitments. Their filings said they had no disagreement with the board and no matters requiring shareholders' attention.

Wong Kok Chau had resigned as independent director and audit committee chairman three days earlier. Another independent director left earlier in October.

The remaining directors are managing director Wong Thean Soon, non-independent non-executive director Datuk Mohd Jimmy Wong Abdullah, and non-independent non-executive chairman Datuk Dr Norraesah Mohamad. Norraesah moved from executive chairman to her current role effective October 23.

Zetrix AI says it will fill the vacancies within three months to meet Bursa Malaysia's board composition requirements. It has also yet to appoint a replacement for external auditor TGS TW PLT.

An external auditor examines financial statements, while an audit committee oversees financial reporting and the audit process on the board's behalf. MARC said the absence of both removes key checks and creates uncertainty about the reliability and timeliness of disclosures. Those gaps matter directly to investors trying to assess cash, digital assets and the company's ability to pay its obligations.

Share Options Offer Limited Potential Cash

Zetrix AI offered 788.83 million options to employees and directors on October 23 at an exercise price of 5.4 sen each, a 28% discount to that day's closing price of 7.5 sen. Recipients could exercise the options immediately.

If all were exercised through new shares, the company could raise about RM42.6 million. That is roughly one fifth of the RM214 million sukuk payment due in March. The money depends on recipients choosing to exercise their options.

The new shares would represent about 9.1% of enlarged share capital, reducing existing shareholders' percentage ownership by the same proportion. Four directors received a combined 57.5 million options: 27.5 million for Wong Thean Soon and 10 million each for Norraesah, Mohd Jimmy Wong Abdullah and Wong Kok Chau.

The scheme was approved in August 2020, implemented that December and expires on December 23, 2030. The latest offer did not specify performance targets or business objectives.

The withdrawn dividend would conserve a further RM20 million. Together, the potential option proceeds and dividend saving amount to about RM62.6 million, less than a third of the March payment. One depends on investors taking up shares; the other preserves money the company had planned to distribute.

Zetrix AI shares later closed at 6.5 sen, down 1.5 sen or 18.75%, valuing the group at about RM496 million. The stock has lost about 92% since the start of the year, despite a 50% rebound on October 23. Shareholders now face both a much lower market price and possible dilution, while sukukholders await a workable agreement.

Key Points

• MARC cut Zetrix AI's RM2 billion sukuk programme to C, just above payment default, after a second downgrade in two weeks.
• The company says all scheduled payments have been made. Its next sukuk payment is RM214 million in March 2027.
• A breach of the largest shareholder covenant remains unresolved after the October 23 meeting. Another meeting is planned without a fixed date.
• The group faces a RM314 million government revenue claim and a separate RM353.13 million tax assessment, which it has appealed.
• Zetrix AI has no external auditor or audit committee and says it will fill board vacancies within three months.
• Share options could raise about RM42.6 million if fully exercised, while cancelling the planned dividend would preserve about RM20 million.