Published on 08 Jul 2022.
RAM Ratings is closely monitoring developments relating to a recent lawsuit involving the shareholders of reNIKOLA Solar Sdn Bhd (reNIKOLA Solar or the Issuer). Kazuomi Kaneto and DPI Solar 1 Pte Ltd on 29 June 2022 brought an action against 25 others, seeking damages for allegedly inducing breach of contract and conspiracy to injure in respect of two 30 MWac solar projects in Kuala Muda, Kedah and Machang, Kelantan, respectively. The suit named Lim Beng Guan (a director of reNIKOLA Solar), reNIKOLA Holdings Sdn Bhd (reNIKOLA Holdings – the sole shareholder of reNIKOLA Solar) and reNIKOLA Sdn Bhd (an ultimate shareholder of reNIKOLA Solar) and Pimpinan Ehsan Bhd (would-be shareholder of reNIKOLA Solar, pending regulatory approval under an ongoing corporate exercise) as co-defendants.
Rated AA3/Stable by RAM, reNIKOLA Solar’s RM390 mil ASEAN Green SRI Sukuk (the Sukuk) is supported by three other unrelated solar projects – a 3.996 MWac plant in Arau, Perlis; a 29.916 MWac plant in Gebeng, Pahang; and a 30 MWac plant in Pekan, Pahang. Structured as a project-financed transaction, the underlying solar projects and their combined cashflows are assigned to the sukukholders. The transaction’s designated accounts – in which all revenue from as well as budgeted operating expenditure (opex) and capital expenditure (capex) for the projects are deposited – are also charged and secured for the benefit of the sukukholders, with the terms of the sukuk financing documents governing payment priority and allocation.
All designated accounts for reNIKOLA Solar and the three projects are controlled by the Security Trustee, except for the respective Operating Accounts and Maintenance Reserve Accounts (MRAs). The risk of excessive annual opex and capex is limited as annual expenses exceeding 10% of the initial budget set during the Sukuk’s issuance will be subject to sukukholders’ approval. These measures are designed to provide control over the transaction’s flow of funds and minimise the risk of cashflow leakage.
In addition to restrictions on reNIKOLA Solar’s business activities, the financing terms of the Sukuk further prohibit dividends and all other payments subordinated to the Sukuk, including those made to the Issuer’s directors, shareholders, related and associated companies, unless a set of distribution covenants is met. Among others, the Issuer must meet a finance service coverage ratio (with cash balances, post-distribution, calculated on principal and profit payment dates) of 1.50 times and maintain minimum required balances in the Sukuk’s Finance Service Reserve Account and MRAs.
At this juncture, we are unable to ascertain adverse effects and related costs that may arise from the legal action, which could potentially be a long-drawn-out process. This might pressure reNIKOLA Solar into increasing future dividends or subordinated payments to shareholders, where excessive payments (albeit without breaching covenants) in the early years of the Sukuk could compromise the Issuer’s debt coverage in later years. Notably, reNIKOLA Holdings has recently completed a RM152.5 million share subscription by B.Grimm Power (Malaysia) Sdn Bhd, a wholly owned subsidiary of a Thai-based multinational conglomerate and an active investor in renewable energy. While the share sale proceeds should help address immediate concerns on reNIKOLA Holdings’ need for dividends from reNIKOLA Solar, we will continue to monitor developments on this front and will update the market as and when more details become available.
Chong Van Nee, CFA
(603) 3385 2482
(603) 3385 2532
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Ratings on reNIKOLA Solar Sdn Bhd