Published on 19 Oct 2022.
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. The favourable terms of Edra Solar’s power purchase agreement (PPA) with the offtaker – 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 89,028 MWh in 2021, outperforming our sensitised projection of 77,306 MWh (+15.2%) as well as the declared annual quantity (DAQ) of 78,400 MWh, i.e., the forecasted annual electricity output submitted to TNB in accordance with the PPA. The PPA requires the Plant to meet at least 70% of the DAQ for each contract year. The Plant’s NEO for 5M 2022 (38,712 MWh) also surpassed its seasonally pro-rated 2022 DAQ by 7.8%.
The strong NEO is a reflection of high solar irradiance and superior plant availability of 99.66% in 2021, during which the Plant experienced only a cumulative 30 hours of unscheduled outages. The outages largely resulted from an external fault at the grid which tripped the outgoing feeder, impeding the Plant’s ability to export electricity. In 5M 2022, the Plant achieved 100% availability with no outages.
In FY Dec 2021, Edra Solar’s revenue and operating profit before depreciation, interest and tax stayed commendable at RM34.6mil (FY Dec 2020: RM34.5 mil) and RM28.5 mil (FY Dec 2020: RM29.0mil), respectively. With healthy net cash from operating activities and no major capital expenditure after the Plant’s completion in 2019, Edra Solar’s pre-financing cashflow remained positive at RM31.0 mil in fiscal 2021 (fiscal 2020: RM33.3 mil). As at the latest repayment date (in April 2022), the Company recorded a finance service coverage ratio (FSCR) (with cash balances) of 6.54 times in the absence of scheduled principal payments during the calculation period, outperforming RAM’s 6.29 times projection.
Looking ahead, Edra Solar’s debt servicing capacity is anticipated to be strong over the Sukuk’s remaining tenure, with minimum and average annual FSCRs (with cash balances) of 1.68 times and 7.23 times, respectively. The ratios are anchored by the Plant’s healthy energy output, satisfactory maintenance and efficient cost management as well as the transaction’s stringent distribution covenants to ensure cash retention within the Company. The ratios are commensurate with the AA2 rating.
Edra Solar would need to be mindful that excessive distributions (without breaching covenants) in the early years of the transaction could compromise its debt servicing metrics in later years, given the Sukuk’s staggered and uneven repayment profile. As such, the Sukuk is supported by strict distribution covenants, including coverage of the next scheduled principal repayments and aggregate profit payments for the calculation period, considering the absence of scheduled principal repayments in certain years. This helps limit distributions more effectively, preserving the Company’s liquidity and annual FSCRs.
Notwithstanding 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.
Ho Chian Leng
(603) 3385 2527
Chong Van Nee, CFA
(603) 3385 2482
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Ratings on Edra Solar Sdn Bhd