RAM Ratings reaffirms Solar Management (Seremban)’s ASEAN Green SRI Sukuk rating

Published on 10 Aug 2022.

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RAM Ratings has reaffirmed the AA3/Stable rating of Solar Management (Seremban) Sdn Bhd’s (SMS or the Company) RM260 mil ASEAN Green SRI Sukuk (2020/2038) (the Sukuk). 

The rating is premised on the robust operational performance of the Company’s 50 MWac solar photovoltaic plant (the Plant) in Rembau, Negeri Sembilan. Despite a higher number of forced outages in FY Dec 2021, the Plant’s net energy output (NEO) of 82,571 MWh exceeded our 74,803 MWh projection by 10.4%. This is equivalent to 99% of its declared annual quantity (DAQ) – the forecasted annual electricity output submitted to Tenaga Nasional Berhad (TNB), the offtaker, in accordance with the Company’s power purchase agreement with TNB. The agreement requires the Plant to meet at least 70% of the DAQ. 

SMS’s overall financial footing was firmer in FY Dec 2021, with its top line staying strong at RM35.51 mil (FY Dec 2020: RM35.66 mil). This, combined with the year’s lower operating and financing expenses, helped raise the Company’s operating profit before depreciation, interest and tax to RM31.18 mil (FY Dec 2020: RM27.07 mil). SMS is no longer in the red, having recorded a net profit of RM8.02 mil (FY Dec 2020: RM1.59 mil loss). Its finance service coverage ratio (FSCR, with cash balances, post-distribution) of 3.80 times in April 2022 surpassed our projection of 2.85 times. A healthy energy output and sound cost control practices are key to the Company’s improving financial performance.

The Plant’s unscheduled outages surged to 236 hours in fiscal 2021 (fiscal 2020: 31.6 hours). The outages were mainly attributable to a flare-up of a switchgear cable and an oil leakage in a medium-voltage transformer. These issues have not recurred following remedial efforts by the operations and maintenance team. Rectifications to address the Plant’s soil settlement, ponding and lightning strike issues are ongoing and are targeted for completion by end-2022. The Plant’s availability for the year stayed commendable at 98.09% amid the operational setbacks. Its strong performance continued into 4M FY Dec 2022, with a cumulative NEO of 28,239 MWh (94% of the seasonally prorated DAQ) and zero forced outages. 

Based on our sensitised cashflow analysis, SMS is projected to register respective minimum and average annual FSCRs of 1.50 times and 1.83 times for the remaining tenure of the Sukuk, in line with the requirements for an AA3 rating. Our stressed assumptions incorporate a lower energy output due to further unforeseen outages, higher degradation, heftier operating expenditure and the optimisation of dividend distributions, including the RM2.67 mil management intends to pay out in October 2022. In addition to keeping the FSCR at a minimum 1.50 times, SMS must ensure that the distribution will have no impact on the sukuk rating.

The Plant remains exposed to solar irradiance variability, legal risk from land conversion issues, operational-related risks as well as single-project and regulatory risks. A longer operating track record would provide a better gauge of the quality of operations and maintenance and the sustainability of the Plant’s energy output. 


Analytical contacts
Seri Nuralya Munawir
(603) 3385 2484

Chong Van Nee, CFA
(603) 3385 2482


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