Published on 30 Oct 2020.
RAM Ratings has reaffirmed the AA1/Stable/P1 corporate credit ratings of Edra Power Holdings Sdn Bhd (EPH or the Group). The reaffirmation is premised on EPH’s resilient concession-based power generating businesses, backed by long-term power purchase agreements (PPAs) with government-owned off-takers. Minimal unplanned plant downtime and a consistent ability to earn full availability-based capacity payments since 2018 highlight the Group’s commendable operational performance. EPH’s healthy dividend receipts, coupled with minimal company-level debts, underpin its robust debt-servicing aptitude.
EPH is Malaysia’s second largest independent power producer group (accounting for 10% of the nation’s installed capacity by equity ownership), after Malakoff Corporation Berhad. With an aggregate equity capacity of 4.7 GW, the Group owns 11 operating power plants, mostly located in Malaysia. These have long operating track records, with some spanning 25 years. The Group is also developing the nation’s biggest combined-cycle gas-turbine (CCGT) power plant – a 2.2 GW facility in Melaka (held by 100%-owned Edra Energy Sdn Bhd or EESB).
The strengths above are, however, tempered by EPH’s immediate need to expand its asset portfolio to ensure uninterrupted earnings. With many (61%) of its facilities having to be retired by 2024, along with the expiry of their respective PPAs, these can only be partially compensated by EESB’s plant upon its completion in 2021. Inability to replenish its portfolio with new projects of similar risk profiles may exert downward pressure on EPH’s credit standing, given its shrinking business portfolio.
Elsewhere, EPH’s investments in Egypt and Bangladesh are exposed to payment risks and potential regulatory changes. That said, the governments of these countries have been supportive thus far given the power sector’s crucial role in their economic development. Revenue collection by EPH’s subsidiaries in both countries has been forthcoming to date, albeit consistently delayed. We note, however, that the off-takers’ payment commitments are supported by guarantees from the Central Bank of Egypt and the government of Bangladesh.
While EPH is actively pursuing several new projects, large-scale ventures into less familiar emerging markets may heighten its exposure to regulatory and collection risks. In addition, greenfield projects would also entail completion risks. These new ventures may alter EPH’s business profile, although we derive comfort from its strong execution track record that is supported by its extensive technical know-how.
For EPH to meet its ambitious expansion plans, we have assumed RM3.78 bil of equity outlay for new projects, as guided by the management. The Group will need to tap its unencumbered cash reserves and also raise another RM1.50 bil of debt to finance its equity requirements. Despite this, its debt coverage is projected to remain within its rating threshold, even after excluding future dividends from EESB and other new acquisitions. EPH is anticipated to maintain its net cash position (including its unencumbered cash pile) in the near term.
RAM’s assessment of EPH’s credit profile places greater emphasis on its company-level credit metrics, given that the bulk of the Group’s debts (those under its operating entities) is project-financed, ring-fenced and has no recourse to the holding company. EPH boasts a robust liquidity profile and balance sheet, with RM1.70 bil of unencumbered cash reserves as at end-June 2020. Most of this is parked under its intermediate holding companies and operating subsidiaries, and can be readily directed back to EPH if required. Moreover, EPH has a RM205 mil undrawn revolving credit facility that can be used for general working capital purposes or to extend financial support to its subsidiaries.
Chong Van Nee, CFA
(603) 3385 2482
Yip Chee Meng
(603) 3385 2516
(603) 3385 2577
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Ratings on Edra Power Holdings Sdn Bhd