Published on 15 Oct 2021.
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 rating reflects the sound project economics of the Company’s 50 MWac solar photovoltaic plant (the Plant) in Kuala Ketil, Kedah. Edra Solar’s favourable power purchase agreement (PPA) with Tenaga Nasional Berhad (TNB, rated AAA/Stable by RAM) and the Plant’s robust operational performance underline the Company’s sturdy debt coverage.
The Plant generated a total net energy output (NEO) of 88,702 MWh in 2020, outperforming our sensitised projection of 77,851 MWh (+13.9%) as well as the declared annual quantity (DAQ) of 78,114 MWh – the forecasted annual electricity output submitted to TNB in accordance with the PPA. The PPA requires the Plant to meet at least 70% of its DAQ for each contract year. The Plant’s 5M 2021 NEO (39,584 MWh) surpassed its seasonally prorated DAQ for 2021 by 12.2%.
The strong NEO is a reflection of superior plant availability of close to 100%, with no unexpected downtime recorded in 2020 and 5M 2021. Movement restrictions necessitated by the COVID-19 pandemic did not affect the Plant’s energy generation and operations and maintenance routine.
Consequently, Edra Solar’s revenue and operating profit before depreciation, interest and tax increased a respective 14.3% and 16.6% y-o-y to RM34.5 mil and RM29.0 mil in FY Dec 2020 (FY Dec 2019: RM30.2 mil and RM24.9 mil). With no further capital expenditures after the Plant’s completion in 2019, Edra Solar’s pre-financing cashflow turned positive with RM33.3 mil recorded in FY Dec 2020 against a deficit of RM24.8 mil a year earlier. We expect the Company’s sensitised pre-financing cashflow to average RM21.5 mil per annum throughout the Sukuk’s tenure (base case: RM22.8 mil) on the assumptions of lower energy output and higher equipment degradation.
Looking ahead, Edra Solar’s debt service capacity is anticipated to be strong over the Sukuk’s remaining tenure, with minimum and average annual finance service coverage ratios (FSCRs) (with cash balances) of 1.68 times and 7.25 times (base case: 1.70 times and 7.38 times). The ratios are anchored by the Plant’s healthy energy output, satisfactory maintenance, cost efficiency and stringent distribution covenants to maintain cash retention within the Company. The said ratios are commensurate with the AA2 rating. The Sukuk is supported by strict distribution covenants, including coverage of the next scheduled principal and aggregate profit payments for the calculation period, given its staggered and uneven repayment profile. This helps limit distributions more effectively, preserving the Company’s liquidity and annual FSCRs.
Despite the Plant’s robust energy output and satisfactory plant maintenance since commercial operations began, Edra Solar remains exposed to the long-term variability of solar irradiance, plant performance risk and inherent regulatory risk. As a single-project company, Edra Solar is also susceptible to force majeure and event risks, but these are somewhat moderated by insurance policies, the Plant’s modular nature and vast site.
Yip Chee Meng
(603) 3385 2516
Chong Van Nee, CFA
(603) 3385 2482
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Ratings on Edra Solar Sdn Bhd