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.
Yip Chee Meng
(603) 3385 2516
(603) 3385 2577
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