Sukuk redemption marks positive step for Cypark Resources

CYPARK Resources Bhd’s retirement of its perpetual sukuk is a positive sign that the company is making progress in stabilising its financial position.

The full redemption of its outstanding Tranche 1 perpetual sukuk musharakah amounting to RM235mil also offers hope to remaining holders of Cypark’s perpetual sukuk that redemption could be on the cards.

Perpetual bonds, or perpetual sukuk, commonly called “perps”, have come under scrutiny in recent years, both for investors drawn by their high yields and for issuers managing repayment obligations.

While issuers are allowed to defer repayment indefinitely, they are typically required to pay step-up rates that increase over time.

The issuance of perpetual bonds by large corporations in Malaysia is not new.

Many large listed corporations use it as a funding mechanism.

Besides banks, property developers have also issued perpetual bonds.

Take the case of YNH Property Bhd, where the first tranche of its perps issuance reached the five-year call date in August 2024. The company chose not to redeem and instead paid higher step-up interest.

Ultimately, the risk of perpetual bonds is that the issuer could face a cash flow problem and not be able to service the bond, let alone pay it back.

That said, there have been no perpetual bond defaults in Malaysia since they became popular with large corporations.

Coming back to Cypark, the move bodes well for its restructuring following a group-wide refinancing exercise, allowing the company to address legacy financing structures, strengthen its balance sheet and focus on the projects at hand.

But it is still has two more tranches ­outstanding, namely Tranche 2 and Tranche 3, worth RM100mil and RM165mil, respectively, which were issued in September 2023.