Published on 19 Oct 2022.
RAM Ratings has reaffirmed the AA1/Stable/P1 corporate credit ratings of Edra Power Holdings Sdn Bhd (Edra Power or the Group).
The reaffirmation is premised on Edra Power’s resilient concession-based power generating businesses that are backed by long-term power purchase agreements (PPAs) with government-owned offtakers. The Group’s thermal power plants earn availability-based capacity payments and fuel cost-reflective energy payments, which shield them from external volatilities. Operating performance remained commendable with minimal unplanned plant downtime and revenue deductions that underscore Edra Power’s dividend flows. That said, as many of its PPAs near maturity over the next few years, timely project replenishment is crucial to sustain the Group’s long-term financial profile.
Edra Power is Malaysia’s second largest independent power producer group, accounting for 15% of the nation’s installed capacity by equity ownership. While the Group’s equity capacity is presently at an all-time high of 6.6 GW, this will slide to 4.3 GW between 2023 and 2026 as retired plants outnumber newly awarded and extended projects assuming no new net additions to its power portfolio. Even as Edra Power continues to actively pursue several business opportunities, we remain mindful however, of the potential added risks that large-scale, greenfield ventures or less regulated power markets may introduce.
Edra Power’s investments in Egypt and Bangladesh have continued to perform, albeit with delayed payments in view of the power sector’s crucial role in economic development. We note that the offtakers’ payment commitments are supported by guarantees from the Central Bank of Egypt and the government of Bangladesh.
The steady operating performance of its power plants sustained the Group’s consolidated operating profit before depreciation, interest and tax at RM1.19 bil in FY Dec 2021 (+1.5% y-o-y). Coupled with a substantial RM320 mil fair value gain on financial assets (reversed from RM80 mil loss), pre-tax profit for the year doubled to RM672.96 mil. At company level, Edra Power has seen fluctuations in dividend income over the last few years as some of its power projects were retired and fresh contributions from newly completed assets remain pending. Although company-level pre-tax profit almost halved to RM437.85 mil in FY Dec 2021, Edra Power enjoys the flexibility of managing dividend payments to shareholders, which it scaled down to RM206 mil (-77% y-o-y) to preserve liquidity.
RAM’s assessment of Edra Power’s credit profile places greater emphasis on company-level metrics, given that its operating entities’ debts are project-financed, ring-fenced and have no recourse to the holding company. Our stress analysis (assuming RM3.20 bil equity outlay for new projects, RM420 mil of expected financial support to Edra Energy in the medium term and RM1 bill in new borrowings) indicates that its average adjusted gearing and adjusted operating cashflow to net debt coverage over the next four years should stay superior at a respective 0.05 times and 2.06 times. The Group had RM1.6 bil of unencumbered cash reserves as of end-June 2022, bulk of which can be spent for project development.
Chu Jia Ying
(603) 3385 2519
Chong Van Nee, CFA
(603) 3385 2482
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Ratings on Edra Power Holdings Sdn Bhd