RAM Ratings assigns preliminary AA2/Stable rating to reNIKOLA Solar II’s proposed ASEAN Green SRI Sukuk

Published on 31 Jul 2023.

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RAM Ratings has assigned a preliminary long-term rating of AA2/Stable to reNIKOLA Solar II Sdn Bhd’s (reNIKOLA Solar II or the Company) proposed ASEAN Green SRI Sukuk Programme of up to RM390 mil (2023/2041) (the Proposed Sukuk). A wholly owned subsidiary of reNIKOLA Holdings Sdn Bhd (reNIKOLA Holdings), reNIKOLA Solar II was set up to raise funds to refinance the development cost of two 30MWac solar photovoltaic (PV) plants (collectively, the Plants) in Kuala Muda, Kedah and Machang, Kelantan. A portion of the proceeds will be utilised to reimburse the cost of three parcels of land held by Kuala Muda Estate Sdn Bhd (KMESB), Machang Estate Sdn Bhd (MESB) and Machang Estate (II) Sdn Bhd (ME2SB) (collectively, the Land Companies). The Kuala Muda and Machang Plants are sitting on the land held by KMESB and MESB while the land held by ME2SB is presently vacant. RAM Sustainability Sdn Bhd is the second opinion provider for the ASEAN Green SRI Framework. The Proposed Sukuk was certified by the Climate Bonds Initiative on 28 July 2023.

The Kuala Muda plant – owned by BGMC Bras Power Sdn Bhd (BBPSB), achieved commercial operations on 22 March 2022 while the Machang plant, owned by Idiwan Solar Sdn Bhd (ISSB), achieved commercial operations on 5 April 2023. As such, the sukukholders will not be exposed to construction risk under this transaction.

Figure 1: Parties to the Proposed Sukuk transaction

Source: reNIKOLA Solar II

OS= ordinary shares; RPS= redeemable preference shares; IFA= intercompany financing agreement

Through full ownership of RPS under the respective Deeds of Arrangement (DOAs), reNIKOLA Holdings will have control over BBPSB and ISSB (the Project Companies), notwithstanding the different ordinary shareholders. The RPS and the respective Shareholders’ Agreements (SA) will confer on reNIKOLA Holdings’ sole economic rights and management authority over each of the Project Companies. Under the respective SAs, reNIKOLA Holdings also has the option to acquire the remaining shares not already owned after the Plants’ fifth year of commercial operations. DOAs were also executed to facilitate the acquisition of the entire share capital and economic interest of the Land Companies.

The repayment of the Proposed Sukuk will be supported by cashflows from each of the Project Companies and the Land Companies, all of which will be obliged to repay and/or advance monies to the Issuer in accordance with the terms of the respective IFAs signed with the Issuer (also assigned as security for the Proposed Sukuk. While we acknowledge the complexity of the financing structure given the various agreements and stakeholders involved, we note that the legality, enforceability and validity of the DOA with each of the Project Companies and the Land Companies will be reviewed by the legal counsel as part of the conditions precedent to the issuance of the Proposed Sukuk.

The preliminary rating reflects the Project Companies’ sound project fundamentals, underscored by the favourable terms of their power purchase agreements with the offtaker, Tenaga Nasional Berhad (TNB). As with other solar projects, the Plants will not face demand risk as TNB is required to accept and purchase all the energy generated, at a fixed energy rate up to a maximum limit specified in the PPAs. The PPA performance requirements are not onerous in that a penalty will only apply if the Project Companies fail to deliver at least 70% of the annual energy output that must be declared to TNB. After teething issues during the first few months of its operations, the Kuala Muda plant’s energy output has been improving since.

We expect reNIKOLA Solar II’s debt servicing ability to remain strong, with respective minimum and average finance service coverage ratios (with cash balances, post-distribution) of 1.69 times and 1.96 times, commensurate with an AA2 rating. That said, our analysis also shows that reNIKOLA II will be reliant on its cash reserves to preserve its FSCR profile and meet its covenanted obligations throughout the Proposed Sukuk’s tenure. Financial discipline imposed by the various covenants under the transaction’s financing terms, including distribution covenants subject to preserving its credit rating, help mitigate excess cash leakages which may compromise its debt servicing ability. 

This is the second sukuk-funded solar project to be undertaken by reNIKOLA Holdings. Upon issuance, it will own and operate five solar plants with a total capacity of 123.9 MWac. Although relatively new to the business, reNIKOLA Holding’s track record has been respectable to date. Its three other plants in Arau (Perlis), Gebeng and Pekan (both in Pahang) have performed well since becoming operational, exceeding their energy forecasts. B.Grimm Power Limited Public Co. Ltd., the 45% shareholder of reNIKOLA Holdings is a prominent Thailand-listed energy player. The long-term support of experienced operations and maintenance personnel and the use of equipment from reputable and financially stable PV module (Hanwha Q Cells) and inverter (Huawei and Sungrow) manufacturers will be crucial to alleviate potential operational risks. Other moderating factors include long-term solar irradiance uncertainty and exposure to regulatory and force majeure risks. 


Analytical contacts
Lee Jo Yee
(603) 3385 2583

Chong Van Nee, CFA
(603) 3385 2482

The credit rating is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.

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Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.

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