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RAM Ratings affirms Edra Power
Published on 05 Dec 2023.
RAM Ratings has affirmed the AA1/Stable/P1 corporate credit ratings of Edra Power Holdings Sdn Bhd (Edra Power or the Group). The affirmation is premised on the Group’s stable concession-based power generation business that is anchored by long-term power purchase agreements (PPAs) with government-linked offtakers. Its thermal power plants earn availability-based capacity payments and fuel cost-reflective energy payments, shielding them from volatile electricity demand and fuel prices. Edra Power continues to demonstrate commendable operating performance, incurring minimal revenue deductions and unplanned downtime, which underscores its dividend flows.
Edra Power’s equity capacity retraced to 4.53 GW as at end-July 2023 (end-2022 and 2021: 6.62 GW and 5.50 GW) following the scheduled expiry of PPAs this year, and is expected to stabilise at no less than 4.2 GW for the next five years. It remains the second largest IPP group in Malaysia, with domestic contributions expected to dominate strongly with the maturity of its concessions in Egypt and fewer projects remain in Bangladesh. The Group’s latest secured 660 MW gas plant in Bangladesh is slated to achieve commercial operations in January 2028. The power sector’s typical prolonged negotiation and gestation periods, the Group’s low risk appetite as well as the crowded renewable energy space add challenge to Edra Power’s pace of expansion. Even as Edra Power continues to actively pursue several business opportunities, we remain mindful of the potential added risks that large-scale, greenfield ventures or less regulated power markets may introduce.
Notwithstanding the continued remittances along with the guarantees extended by the sovereign governments for its overseas concessions payment receivables in Egypt and Bangladesh, the current economic distress faced by these two countries have resulted in longer collection cycles from its paymasters. Revenue from the two countries made up 8% of the Group’s consolidated total in fiscal 2022.
Financially, the full commissioning of its new 2.24 GW gas plant under Edra Energy Sdn Bhd led to an almost doubling in consolidated revenue to RM9.57 bil in FY Dec 2022. Despite this, pre-tax profit more than halved to RM252.28 mil due to elevated operating expenses, provisions, depreciation and financing costs. Because of scheduled PPA expiries, revenue for 7M FY Dec 2023 of RM4.80 bil came in comparatively lower. This, coupled with high operating expenses, continued to weigh on its bottom line of RM116.98 mil.
RAM’s assessment of Edra Power’s credit profile places greater emphasis on company-level metrics, given that its operating entities’ debts are project-financed, ring-fenced and have no recourse to the holding company. Edra Power’s revenue had fluctuated in recent years due to the gradual retirement of power plants. Nonetheless, stronger pre-tax profit of RM617.71 mil in FY Dec 2022 (FY Dec 2021: RM437.85 mil) was supported by higher dividends. For 7M FY Dec 2023, its pre-tax profit of RM205.95 mil is relatively low due to timing of dividends, although total receipts for the year are expected to moderate due to expired PPAs. In view of minimal operational costs and borrowings at company-level, Edra Power has been able to comfortably fund its dividends which is expected to rise moving forward.
As at end-July 2023, the company-level debts reduced to RM130.01 mil translating into superior gearing of 0.01 times. It also had RM1.52 bil of unencumbered cash held under intermediate holding companies and operating subsidiaries. Looking ahead up to fiscal 2027, our sensitivity analysis assumes RM2.10 bil of equity outlay for new projects and financial support for Edra Energy, resulting in a net debt position. We anticipate company-level gearing and operating cashflow net debt coverage to stay solid, registering their weakest at a respective 0.06 times and 0.56 times.
Edra Power is 63% indirectly owned by China General Nuclear Power Corporation (CGNPC) and 37% held by China Southern Power Grid Co., Ltd (CSG). Both entities are majority owned by China’s State-owned Assets Supervision and Administration Commission of the State Council. CGNPC is China’s largest nuclear power operator by capacity while CSG is one of the duopoly state power grid servicers and covers five southern provinces. We opine Edra Power benefits from CGNPC’s renewable energy expertise and enjoys some financial flexibility although this is untested. The Group fits into CGNPC’s One Belt One Road aspirations with expertise in gas-fired plants and a focus in the Southeast Asian market.
Analytical contacts
Ben Inn
(603) 3385 2510
ben@ram.com.my
Chong Van Nee, CFA
(603) 3385 2482
vannee@ram.com.my
The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch 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.
RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.
Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.
Published by RAM Rating Services Berhad
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