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RAM sees positive progress on Telekosang Hydro One transaction but residual completion risks keep outlook negative
Published on 24 Feb 2023.
Telekosang Hydro One Sdn Bhd (TH1 or the Issuer) reached the feed-in-tariff commencement date (FiT CD) for its 24 MW small hydro power plant (Plant 1) on 15 February 2023, a little later than the earlier targeted end-December 2022 completion date. RAM Ratings’ last update on the Issuer was published in September last year. As of 20 February 2023, we understand that all physical works for Telekosang Hydro Two Sdn Bhd’s 16 MW plant (Plant 2) had been completed and testing and commissioning activities are underway. Both plants are located in Tenom, Sabah.
Combined cashflow generation from both entities supports the repayment of the Issuer’s RM470 mil ASEAN Green SRI Sukuk (2019/2037) (Senior Sukuk, rated AA3/Negative) and RM120 mil ASEAN Green Junior Bonds (2019/2039) (Junior Bonds, A2/Negative). The negative outlook on the ratings reflects our continued concerns over potential further delays in the commissioning of Plant 2.
While Plant 1 has been completed, both plants missed our stressed FiT CD assumption of end-December 2022. Consequently, the Issuer has further withheld remaining contractual payments payable to Sinohydro Corporation (M) Sdn Bhd and Power Construction Corporation of China, Limited (the EPCC contractor), in addition to the liquidity of RM40 mil obtained earlier. In the interim, the Issuer remains in discussion to conclude the payment of delay liquidated damages (LDs) owed by the EPCC contractor. LDs from the EPCC contractor are supported by performance bonds from HSBC Bank Malaysia Berhad.
On 15 February 2023, closing balances in TH1’s Finance Service Reserve Account (FSRA) stood at RM12.5 mil against the required minimum of RM22.2 mil covenanted under the transaction documents. The Issuer should be able to make the necessary transfer to the FSRA within the remedy period ending on 9 March 2023 in view of its combined liquidity of RM23.3 mil from the transaction’s total cash balances and a bank guarantee of RM12.5 mil from MIDF Amanah Investment Bank Berhad. Failure to do so would be deemed a breach of obligations under the financing documents, constituting an event of default.
Our annual review of the ratings is scheduled to be conducted within the next two months, when a more thorough assessment of the transaction will be carried out. Until then, we will maintain close monitoring of Plant 2’s progress as timely and additional liquidity support would be critical to cushion the cashflow impact from any further completion delay.
Analytical contacts
Wong Ee Loo
(603) 3385 2521
eeloo@ram.com.my
Chong Van Nee, CFA
(603) 3385 2482
vannee@ram.com.my
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Published by RAM Rating Services Berhad
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