Published on 27 Nov 2020.
RAM Ratings has assigned a preliminary AA3/Stable rating to reNIKOLA Solar Sdn Bhd’s (reNIKOLA Solar or the Issuer) proposed RM390 mil ASEAN Green SRI Sukuk Programme (2020/2037) (the Proposed Sukuk). The Issuer’s Green Sukuk Framework has been reviewed by RAM Sustainability Sdn Bhd.
A wholly owned subsidiary of reNIKOLA Sdn Bhd (the Sponsor), reNIKOLA Solar had been set up to raise funds to refinance and manage three solar photovoltaic (PV) projects (the Projects or the Plants). The Projects consist of a 3.996 MWac PV plant in Arau, Perlis, with commercial operation date (COD) of 3 March 2018 (the Arau Plant); a 29.916 MWac PV plant in Gebeng, Pahang, with a COD of 22 January 2020 (the Gebeng Plant); and a 30 MWac PV plant in Pekan, Pahang, which is still under construction and 93% completed as at end-October 2020 (the Pekan Plant).
The Plants are held by three different project companies, i.e. SBU Power Sdn Bhd, RE Gebeng Sdn Bhd and Halpro Engineering Sdn Bhd (collectively known as the Project Companies). Although the Project Companies do not have the same ordinary shareholders, the Sponsor - via three of its wholly owned special-purpose vehicles (SPVs) - will be able to exert control over them through full ownership of their redeemable preference shares (RPS). As the RPS holder, the Sponsor has the sole economic rights and management control over the Project Companies under their respective Constitutions and Shareholder Agreements.
The Sponsor ultimately holds all the RPS of SBU Power and RE Gebeng, while full acquisition of Halpro’s RPS will only be concluded upon completion of the Pekan Plant. Proceeds from the Proposed Sukuk will be advanced to the Project Companies for their respective refinancing exercises, except for RM185 mil related to Halpro, which will be held in the Issuer’s Collection Account (controlled by the Security Trustee). If subscription of Halpro’s RPS is not completed by 31 July 2021, reNIKOLA Solar must then mandatorily redeem the RM185 mil. As such, the sukukholders are not exposed to completion risk. The Project Companies are obliged to repay and/or advance to the Issuer according to the terms of the Intercompany Financing Agreements (IFAs) to be signed with the latter. These repayments and/or advances are used to meet the Issuer’s periodic principal and profit payments. We highlight that the assignment of the IFAs form part of the security for the Proposed Sukuk.
The preliminary rating reflects the Project Companies’ sound project fundamentals, underscored by the favourable terms of their Power Purchase Agreements. Tenaga Nasional Berhad (AAA-rated by RAM) is obligated to purchase energy generated by the Plants up to a specified limit, thus moderating the absence of fixed availability-based revenue. Except for some teething issues at the Gebeng Plant, there have been no major operational issues or outages since the CODs of the Arau and Gebeng Plants. Energy output from both plants have been healthy. As such, the Issuer’s projected debt coverage is deemed strong, anchored by predictable cashflow. The operations and maintenance (O&M) of the Plants is also straightforward despite the use of trackers at the Pekan Plant, introducing moving parts to the O&M mix.
Based on RAM’s stressed scenario, reNIKOLA Solar’s debt-servicing metrics are deemed strong, as reflected by its respective minimum and average annual finance service coverage ratios (FSCRs, with cash balances) of 1.50 and 1.76 times throughout the tenure of the Proposed Sukuk. These ratios are commensurate with its AA3 rating. Our sensitised cashflow analysis assumes lower energy output due to more unforeseen outages and degradation, along with heftier operating expenditure.
The abovementioned strengths are, however, tempered by a somewhat complicated transaction structure which involves the change of ownership and control over and amalgamation of the Project Companies through the use of RPS and multiple agreements. Other moderating factors include the Sponsor’s limited experience in the solar business, uncertain solar irradiance forecasts, and exposure to regulatory risks.
Established only this year, both the Sponsor and the Issuer are new to the renewable energy business. reNIKOLA Solar’s current management and operations team is a new set-up with the relevant work experience to manage and oversee the Plants. Although the individuals behind the Sponsor have some initial experience in developing solar projects, the long-term support of experienced O&M service providers and the use of equipment from reputable and financially stable PV module and inverter manufacturers (i.e. JA Solar and Huawei) should help alleviate potential operational risk.
Yip Chee Meng
(603) 3385 2516
(603) 3385 2577
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