Published on 11 Oct 2023.
RAM Ratings has affirmed 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 is premised on the sound project economics and robust operational performance of the Company’s 50 MWac solar photovoltaic plant (the Plant) in Kuala Ketil, Kedah. These factors underpin the Company’s sturdy debt coverage. The favourable terms of the power purchase agreement (PPA) with offtaker, Tenaga Nasional Berhad (TNB, issues rated AAA/Stable by RAM) also support the rating.
The Plant maintained uninterrupted operations without any outages throughout 2022 and 5M 2023. In FY Dec 2022, the Plant’s energy production surpassed our sensitised projection and the declared annual quantity (DAQ) – the forecast provided to TNB at the start of each year – by 11.1% and 8.8%, respectively. This output is markedly above the PPA requirement of at least 70% of DAQ. The Plant continued to demonstrate resilience in 5M 2023, seeing production climb 8.2% above the seasonally prorated DAQ for this period. We expect the Plant to meet the DAQ for this year and exceed our projected numbers.
In FY Dec 2022, the Company’s revenue and operating profit before depreciation, interest and tax stayed commendable at RM34.3mil and RM27.8 mil, respectively (FY Dec 2021: RM34.6 mil and RM28.5 mil). Pre-financing cash flow was lower at RM27.7 mil (fiscal 2021: RM31.1mil), largely due to the timing variance in Edra Solar’s billing and payment from TNB. We nevertheless view counterparty risk as low, comforted by TNB’s superior credit profile and the absence of overdue receivables. As at the latest sukuk repayment date in April 2023, the Company recorded a finance service coverage ratio (FSCR) (with cash balances) of 2.92 times, outperforming RAM’s projection of 2.79 times.
Looking ahead, Edra Solar is anticipated to maintain its strong ability to service debt throughout the remaining tenure of the Sukuk. Minimum and average annual FSCRs (including cash balances) are projected to be 1.68 times and 7.87 times, respectively, commensurate with the AA2 rating.
The Sukuk is backed by strict distribution covenants, requiring coverage to include both the next scheduled principal and aggregate profit payments for the calculation period, in view of its staggered and uneven repayment profile. That said, any excessive distributions by Edra Solar, even if permitted, in the early years of the transaction could introduce liquidity risk and compromise debt servicing metrics in later years.
Like other solar plants, the Kuala Ketil plant is exposed to solar irradiance variability and performance risks. While the Plant’s energy output has exceeded our expectations since its commercial operations date, diligent operations and maintenance are still key to ensuring satisfactory long-term performance. Single-project and regulatory risks remain despite the federal government’s supportive stance on renewable energy projects.
Ho Chian Leng, CFA
(603) 3385 2527
Chong Van Nee, CFA
(603) 3385 2482
(603) 3385 2500
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Ratings on Edra Solar Sdn Bhd