Published on 26 Aug 2020.
RAM Ratings opines that the delayed commencement of Edra Energy Sdn Bhd’s (Edra Energy) 2,242 MW combined-cycle, gas-turbine (CCGT) power plant in Alor Gajah, Melaka (the Plant or the Project) will not pose any immediate liquidity issue. Similarly, the higher-than-expected tax payments are expected to be cushioned by the project’s available liquidity.
Due to force majeure (FM) arising from the shutdown of the Plant to comply with the nationwide movement control order (MCO) and conditional MCO, the engineering, procurement and construction (EPC) contractors have submitted a claim to extend the agreed Scheduled Commercial Operation Date (SCOD) of the Plant under the EPC contract by up to 5.9 months vis-à-vis RAM’s earlier stressed assumption of 2 months. The SCOD under the EPC contract mirrors that of the Power Purchase Agreement (PPA).
Under the PPA, the SCOD of the Plant shall be extended by the number of days that it has been affected by a FM event, which includes work stoppage. If TNB grants an extension of time to the PPA’s SCOD in line with the EPC contractors’ claim, no liquidated damages would be imposed on Edra Energy for the delay. Notably, a revised SCOD under the PPA is still unclear at this juncture as the claim for extension of time is being reviewed by Edra Energy and Tenaga Nasional Berhad (TNB – rated AAA/Stable by RAM).
Meanwhile, the reinstatement of the Sales and Service Tax since September 2018 has also led to higher tax payment in Edra Energy’s projected cashflow. This is due to the absence of an expected input tax claim at the end of the construction period, which would have otherwise been available under the former Goods and Services Tax framework.
As of 27 June 2020, overall project completion as reported by the EPC contractors stood at 95.58% (2.46% behind the planned 98.04%). With no variation order to date, the Project’s pre-funded contingency sum (4.2% of its EPC cost) and the liquidity buffer resulting from prudent cost management will be able to help cushion any adverse cashflow impact. That said, we note that its PPA allows downward tariff revisions caused by construction and financial cost savings against the PPA’s initial financial model. However, the PPA also provides that any downward tariff adjustment should not push Edra Energy’s minimum annual FSCR (without cash balances) below 1.16 times, as stipulated in the Sukuk financing documents.
Based on RAM’s preliminary assessment, Edra Energy has sufficient liquidity to meet the profit payments of its RM5.085 bil Sukuk Wakalah (2018/2038) (rated AA3/Stable) up to July 2021, assuming no variation order. Pending a resolution on the Project’s available liquidity buffers in relation to the PPA terms, Edra Power Holdings Sdn Bhd (rated AA1/Stable) – Edra Energy’s immediate and sole holding company – has executed a letter of undertaking to irrevocably and unconditionally ensure that Edra Energy is provided with the requisite liquidity support to uphold the Sukuk’s current rating.
We are conducting an annual rating review on Edra Energy’s Sukuk. We expect to complete this within the next two months. The rating outcome will be subject to the receipt of further updates on the Project’s progress and remaining work plan.
Edra Energy is ultimately owned by China General Nuclear Power Corporation Ltd (63%) and China Southern Power Grid Company Ltd (37%). The EPC contractors for the Project are Hyundai Engineering Co Ltd, Hyundai Engineering & Construction Co Ltd and Hyundai Engineering Malaysia Sdn Bhd. The Plant will consist of three single-shaft CCGT GBs, with a nominal capacity of 747 MW each. Under the PPA, the respective SCOD of GB 1, GB 2 and GB 3 are 1 January, 1 March and 1 May 2021.
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Ratings on Edra Energy Sdn Bhd