Published on 04 Nov 2020.
RAM Ratings has reaffirmed the AA2/Stable rating of Edra Solar Sdn Bhd’s (Edra Solar or the Company) RM245 mil ASEAN Sustainability SRI Sukuk (the Sukuk). The reaffirmation reflects the robust operational performance of Edra Solar’s 50 MWac solar photovoltaic (PV) plant (the Plant or the Project) in Kuala Ketil, Kedah. This underpins the Company’s sturdy debt coverage, which is in turn backed by a 25-year power purchase agreement (PPA) with Tenaga Nasional Berhad (TNB, rated AAA/Stable by RAM).
Following the completion of the Plant in early 2019, Edra Solar had faced minimal teething issues with negligible outages. It registered 75,530 MWh of net electrical output (NEO) in its first 10 months of operations ended 31 December 2019. This exceeded the PPA’s pro-rated declared annual quantity (DAQ – the forecast provided to TNB at the start of each year) as well as the PPA’s performance requirements of having to deliver 70% of the DAQ.
Notably, the COVID-19 pandemic and the various stages of the Movement Control Order (MCO) have had no impact on Edra Solar’s energy production. The Plant has remained fully operational while operations and maintenance (O&M) activities have not been affected. As at end-August 2020, the Plant’s NEO of 61,153 MWh was on track towards achieving its targeted DAQ of 78,114MWh, as declared to TNB.
In line with its stable energy output, Edra Solar’s earnings exceeded our expectations in fiscal 2019, even posting its maiden profit. Its net cashflow from operations came up to RM21.74 mil against RAM’s projected RM19.62 mil for the same period. Going forward, the Company’s pre-financing cashflow is anticipated to average RM22 mil throughout the tenure of the Sukuk (base case: RM24 mil), after incorporating an upward revision of the Project’s annual O&M cost.
The said cashflow will anchor Edra Solar’s respective minimum and average annual finance service coverage ratios (FSCRs) of 1.65 and 6.66 times (with cash balances) (base case: 1.65 and 6.80 times). These ratios are in line with the requirements for the Sukuk’s AA2 rating. The Sukuk is supported by more stringent distribution covenants, including coverage of the next scheduled principal and aggregate profit payments for the calculation period, given its more staggered and uneven repayment profile. This helps limit distributions more effectively, thus preserving the Company’s liquidity and annual FSCRs.
As with any solar PV plant, Edra Solar is exposed to the variability of solar irradiance and the Plant’s equipment performance, which determine the amount of electricity generated. In this regard, the Company uses well-established polycrystalline PV modules and string inverters produced by highly reputable and financially stable manufacturers. While the O&M of solar PV plants is deemed straightforward, the Project O&M service provider is also vastly experienced in power plant O&M, although previously limited to thermal-based plants. Its transition to large-scale solar O&M has been commendable based on the Plant’s performance to date.
Meanwhile, regulatory risk is inherent for concession-based businesses as they are subject to public scrutiny and changing government policies. The Government of Malaysia is supportive of solar PV projects, with a national target of 20% clean energy use by 2025. As a single-project company, Edra Solar is susceptible to force majeure and event risks. Although its insurance policies mitigate these risks, they may not sufficiently compensate it for financial losses resulting from such events. The Plant’s vast site and the modular nature of its PVs further moderate this risk.
Davinder Kaur Gill
03 3385 2525
(603) 3385 2577
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Ratings on Edra Solar Sdn Bhd