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RAM Ratings reaffirms Tadau Energy’s AA3 SRI sukuk rating
Published on 30 Jul 2020.
RAM Ratings has reaffirmed the AA3/Stable rating of Tadau Energy Sdn Bhd’s (Tadau or the Company) RM250 mil SRI Sukuk Programme (2017/2033). The rating reflects the robust operational performance of Tadau’s 50 MWac solar photovoltaic (PV) plants in Kudat, Sabah. Comprising Unit 1 (2MWac) and Unit 2 (48MWac), the Plants supply electricity to Sabah Electricity Sdn Bhd (SESB) via two power purchase agreements (PPAs). They generate robust and stable cashflow which supports the Company’s debt-servicing aptitude.
As with other solar projects, Tadau’s PPAs with SESB require the latter to accept and purchase energy generated by the Plants, up to a specified limit. This moderates the absence of fixed availability-based revenue earned by thermal plants. In contrast to thermal plants, the lack of moving parts and combustion functions further simplifies the operations and maintenance (O&M) of Tadau’s PV Plants.
Since their full commercial operations date (COD) in September 2018, the Plants’ energy output has been consistently exceeding our projections and the forecast provided to SESB at the start of each year (termed “declared annual quantity”, or DAQ). Tadau’s net electrical output in 2019 surpassed the DAQ and RAM’s sensitised projection by a respective 21.7% and 19.8%. The PPAs only require the Plants to meet 70% of their DAQ. No unscheduled outage was recorded last year. Barring major unforeseen outages, RAM expects the Plants to maintain their outstanding performance. Tadau has also been receiving prompt payments from SESB.
In line with its robust energy output and healthy revenue, Tadau became profitable in its first nine months of full operations. Looking ahead, we anticipate Tadau’s cash-generating aptitude and debt-protection metrics to remain strong, with respective minimum and average annual finance service coverage ratios (FSCRs) of 1.50 and 2.35 times (with cash balances) throughout the Sukuk’s tenure. Our sensitised cashflow analysis assumes lower energy output due to unforeseen outages, along with lower established capacity, plant efficiency and energy rate. We also expect Tadau to adhere to its distribution covenant on a forward-looking basis throughout the Sukuk’s remaining tenure.
Despite the Plants’ commendable performance since their COD, they are still exposed to solar irradiance variability and plant performance risks. A longer operating track record would provide a better gauge of the quality of O&M work and the sustainability of the Plants’ energy output. Tadau is also exposed to single-project and regulatory risks, despite the Government’s supportive stance on renewable energy projects. Any unresolved issues relating to the offtaker could also potentially affect Tadau’s cashflow.
Analytical contact
Yip Chee Meng
(603) 3385 2516
cmyip@ram.com.my
Media contact
Padthma Subbiah
(603) 3385 2577
padthma@ram.com.my
The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.
RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.
Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.
Published by RAM Rating Services Berhad
© Copyright 2020 by RAM Rating Services Berhad
