Published on 26 May 2023.
RAM Ratings has affirmed 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 affirmation is premised on the robust operational performance of the Company’s 50 MWac solar photovoltaic plant (the Plant) in Rembau, Negeri Sembilan. The Plant’s net energy output (NEO) of 77,366 MWh in FY Dec 2022 – equivalent to 93% of it declared annual quantity (DAQ) – exceeded RAM’s projection by 4%, although lower than the previous year’s.
SMS recorded a lower unscheduled downtime of 201 hours in FY Dec 2022 (FY Dec 2021: 359 hours), caused by a switchgear busbar and transformer high voltage cable box flare-up. The damaged components have since been replaced and preventive measures put in place to avoid a recurrence. Amid the operational setbacks, the Plant’s annual availability fell marginally below the 98% guaranteed under SMS’s Operations and Maintenance Agreement, for which management expects to receive liquidated damages. On that note, the Plant’s operations and maintenance were taken over by a new third party, Eco Solar Solutions Sdn Bhd, on 1 January 2023.
Subdued energy generation – due to forced outages and low solar irradiance – coupled with higher operational expenses caused the Company’s pre-tax profit to decline 38% to RM4.98 mil in fiscal 2022 (fiscal 2021: RM8.02 mil). Including SMS’s accumulated cash balances, however, its finance service coverage ratio (FSCR, with cash balances, post-distribution) remained healthy at 3.09 times in April 2023, outperforming our 2.92 times projection. This strong performance continued into 2M FY Dec 2023, seeing the Plant record a cumulative NEO of 13,997 MWh (99.6% of seasonally pro-rated DAQ) despite a 32-hour forced outage.
Our sensitised cashflow analysis indicates that SMS will register respective minimum and average annual FSCRs of 1.50 times and 1.92 times for the Sukuk’s remaining tenure, in line with the AA3 rating. Our stressed assumptions incorporate a lower energy output, higher degradation, heftier operating expenditure, non-receipt of liquidated damages and the optimisation of distributions, including the RM2.5 mil management intends to pay out in October 2023.
SMS is in the process of obtaining a Certificate of Compliance and Completion (CCC). Not only is the CCC essential to avoid legal disruptions to the Plant’s operations, but it is also the remaining condition subsequent (CS) under the terms of the Sukuk. We draw comfort from the Company’s continuous liaison with the authorities to finalise the CCC as well as the extension of the deadline to fulfil the CS to 21 July 2023.
Seri Nuralya Munawir
(603) 3385 2484
Chong Van Nee, CFA
(603) 3385 2482
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