Published on 30 May 2022.
RAM Ratings has reaffirmed the AA3 rating of Cypark Ref Sdn Bhd’s (Cypark Ref or the Turnkey Contractor) RM550 mil SRI Sukuk Murabahah Programme (2019/2041) (the Sukuk) while maintaining the outlook on the rating at negative.
Cypark Ref is a funding conduit set up to raise financing for the development of three 30 MWac solar photovoltaic projects (the Projects) separately owned by different entities (the Project Companies) (Table 1 on next page). Post-completion of the Projects, Cypark Ref will receive deferred turnkey contract payments from the Project Companies to service its sukuk obligations (Figure 1). Receipts of the distribution payments, however, will be subject to the outperformance of the Project Companies and adherence to their distribution covenants.
The rating reaffirmation is premised on the liquidity buffers available to service the Sukuk despite protracted delays in completing the two floating solar plants in Danau Tok Uban, Kelantan (DTU plants). This includes an irrevocable and unconditional RM26 mil liquidity bank guarantee (BG) procured by Cypark Resources Berhad (CRB or the transaction sponsor) for Cypark Ref in January 2022 and a deferral of RM20 mil of EPCC progress payments until a second BG of an equivalent amount is issued. We expect the DTU plants to become operational on 31 January 2023, later than our previous projection of 30 June 2022.
We do not envisage any near-term liquidity crunch as existing cash in the transaction along with Viva Solar Sdn Bhd’s operating cashflow will provide funding necessary to enable Cypark Ref to meet its immediate debt obligations this year. Thanks to the added liquidity assistance totalling RM46 mil, the transaction’s debt coverage has been restored to a level commensurate with an AA3 rating. We have nevertheless retained the negative outlook to reflect our continued concerns on uncertainties over the timely completion of the DTU plants.
The unexpectedly lengthy approval process for the DTU plants’ interconnection facilities (IF), more frequent heavy rainfalls during the monsoon season, extensive flooding in February 2022 and Covid-19 infections onsite have hampered construction progress at the plants. With the two plants 83.50% complete as of end-April 2022, we expect full commissioning only on 31 January 2023 (pushed back from management’s current target of 30 September 2022). Our revised timeline considers a more realistic six-month construction period for the IF, two months for testing and commissioning, and an extra time buffer for unexpected weather- and Covid-19-related events.
We have also reviewed Cypark Ref’s proposed revisions to the transaction terms, for which sukukholders’ approval is pending. The revisions are intended to improve the Issuer’s access to the Project Companies’ cashflows and further align the Project Companies’ interests with meeting the Issuer’s sukuk obligations. To facilitate this, each Project Companies’ turnkey contract will have a prepayment feature for deferred turnkey contract payments to allow the acceleration of payments and ensure timelier fund transfers to the Issuer. The Project Companies will also provide undertakings to make such prepayments immediately upon receipt of a request from the Issuer.
Given the said changes and revisions to the transaction’s financial covenants, RAM now views the Issuer and the Project Companies in aggregate, measuring their credit strength by way of an annual consolidated finance service coverage ratio (FSCR). Previously, the funds of each Project Company were not viewed to be fungible and accordingly, the Sukuk was assessed on a weakest-link approach. Considering available external liquidity support under a stressed completion scenario, our assessment shows that Cypark Ref’s credit metrics will stay in line with the AA3 rating threshold under the current and previous transaction terms. Our sensitised case indicates minimum and average annual consolidated FSCRs (with cash balances, post-distribution) of 1.50 times and 1.83 times, respectively, throughout the Sukuk’s tenure.
Notwithstanding new developments at the CRB group level , we take cognisance that the Sukuk is a non-recourse project debt. As at the date of writing, RAM is not aware of any changes in key management nor direct adverse effect to the transaction. While our credit assessment takes into account added liquidity support put in place, we will continue to closely monitor developments at CRB and announce updates if our rating no longer holds.
Chu Jia Ying
(603) 3385 2519
Chong Van Nee, CFA
(603) 3385 2482
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