Published on 29 Dec 2020.
RAM Ratings has reaffirmed the AA3/Stable rating of Cypark Ref Sdn Bhd’s (Cypark Ref or the Issuer) RM550 mil SRI Sukuk Murabahah Programme (2019/2041) (the Sukuk). This is premised on Cypark Ref having sufficient liquidity to weather construction delays and the consequential revenue loss suffered by the three solar power projects being financed by the Sukuk. The estimated shortfall in cashflow will be restored by a RM15 mil cost waiver from the engineering, procurement, construction and commissioning (EPCC) contractor.
Cypark Ref is the appointed turnkey contractor and special-purpose vehicle set up to raise financing for three 30 MWac solar photovoltaic (PV) projects (the Projects). The Projects are separately owned by Viva Solar Sdn Bhd (in Sik, Kedah – the Sik Plant), Cove Suria Sdn Bhd (in Danau Tok Uban (DTU), Kelantan – originally Kelinchi Dam, Negeri Sembilan) and Cypark Estuary Solar Sdn Bhd (in DTU – originally Terip Dam, Negeri Sembilan) - collectively known as the Project Companies.
As Cypark Ref’s obligations under the Sukuk will be met by the respective turnkey contract payments due from the Project Companies, RAM’s analysis focuses on the underlying project fundamentals and the ability of these companies to service their deferred Turnkey Contract payment obligations. Meanwhile, Cypark Ref has sub-contracted out the EPCC works of the Projects to its parent company, Cypark Renewable Energy Sdn Bhd (CRE or the EPCC Contractor).
CRE has provided an undertaking to irrevocably and unconditionally relinquish its rights to claim RM5 mil of progress payments under each of the Projects’ EPCC contracts (total of RM15 mil) should their respective completion dates breach the targeted deadline of 4 June 2021. The sum can then be utilised towards the payment of the Sukuk obligations due in December 2021. This has effectively mitigated the projected liquidity shortfall under RAM’s stressed case.
Notably, the construction progress of the Projects has been severely hampered by the movement control orders and the resultant stringent work protocols. Given their status as reservoirs for drinking water (classified as national security areas), access to the project sites at Kelinchi Dam and Terip Dam have been made difficult amid the pandemic. The unexpected hindrance has compelled Cove Suria and Cypark Estuary to relocate their plants to DTU, with in-principal approval from Suruhanjaya Tenaga. The relocation to DTU is anticipated to contribute positively to the transaction in the longer term, thanks to its higher energy output and simpler maintenance works after merging two plants into a single site.
Measured against the revised timeline, the Sik Plant was 74.23% completed as at 30 September 2020 (planned: 72.42%); that of the DTU Plants stood at 11.09% (planned: 3.55%). CRE expects to obtain all key approvals for DTU by 31 December 2020 and complete the construction, testing and commissioning of the two floating solar PV plants within six months, which is deemed challenging. Meanwhile, progress in Sik has been hindered by stringent standard operating procedures and monsoon rains. Based on our assessment and interaction with the independent technical adviser, we believe that September 2021 (for the Sik plant) and December 2021 (for the DTU plants) are more achievable for completion, which we have adopted in our stressed scenario.
RAM has considered the RM15 mil EPCC cost waiver when determining the Project Companies’ debt coverage, in which case their FSCRs (with cash, post-distribution, calculated on deferred turnkey payment dates) will recover to 1.50 times. This additional liquidity support has also alleviated the pressure on Cypark Ref’s liquidity. Its first deferred Turnkey Contract payment from the Project Companies can only be collected on the respective commercial operation dates (CODs) of the Projects. Barring further delays, the Project Companies and the Issuer are envisaged to uphold their healthy debt coverage levels.
Due to force majeure arising from work stoppage at the Plants to comply with pandemic-related movement restrictions, the Project Companies have submitted a claim to Tenaga Nasional Berhad (TNB) to extend their scheduled CODs of 31 December 2020 under the respective Power Purchase Agreements. TNB has granted an interim extension of time (EoT) up to 22 March 2021 to Viva Solar while still reviewing the others. The utility giant will only make its final decision on the EoT and payment of liquidated damages (LDs) after the Projects achieve their COD. Under the EPCC contracts, CRE will bear all LDs payable to TNB.
Chu Jia Ying
(603) 3385 2519
(603) 3385 2577
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