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Telekosang Hydro One making progress in boosting transaction liquidity; second plant achieves commercial operations
Published on 22 Feb 2024.
The respective AA3 and A2 ratings of Telekosang Hydro One Sdn Bhd’s (TH1 or the Issuer) RM470 mil ASEAN Green SRI Sukuk (2019/2037) (Senior Sukuk) and RM120 mil ASEAN Green Junior Bonds (2019/2039) remain on Negative Watch. Though there has been some positive progress since the last rating update in November 2023, in addressing RAM’s earlier concerns, the transaction failed to meet the minimum required balance for its covenanted Finance Service Reserve Account (FSRA) on 6 February 2024, as expected.
This was due to the protracted resolution of claims for liquidated damages (LDs) from the engineering, procurement, construction and commissioning (EPCC) contractor for the late completion of the Issuer’s 24 MW small hydro power plant and the 16 MW similar plant held under its sister company, Telekosang Hydro Two Sdn Bhd (TH2).
The 16 MW plant, in the meantime, successfully reached its feed-in-tariff commencement date on 26 December 2023 though TH2 has yet to generate cashflow. This will materialise once billings to Sabah Electricity Sdn Bhd (SESB) (its sole offtaker) commences after official approval is obtained from the newly established Energy Commission of Sabah. The Issuer expects to get the green light by the end of this month. Once achieved, this would enable the combined cashflow of TH1 (commercially operational since mid-February 2023) and TH2 to support the repayment of the Issuer’s debt obligations.
As of 6 February 2024, the transaction had cash balances totalling RM16.9 mil in designated accounts and a RM12.5 mil bank guarantee, which fell short of the required minimum FSRA balances of RM32.2 mil. In view of continued uncertainties in finalising LDs from the EPCC contractor – Sinohydro Corporation (M) Sdn Bhd and Power Construction Corporation of China, Limited – Jentayu Capital Sdn Bhd (the transaction sponsor and TH1’s ultimate controlling shareholder) has sought to provide advances to boost the Issuer’s liquidity position.
In this respect, the sponsor successfully secured a RM25 mil bridging facility, proceeds from which will be advanced to TH1 to fund the FSRA shortfall, pending the receipt of LDs. As the loan drawdown process might take time, sukukholders have given TH1 indulgence until 6 May 2024 (from 7 March 2024) to fulfil the minimum required FSRA balances. Sukukholders also consented to a one-off repayment of advances by the Issuer to the Sponsor (up to RM25 mil) upon the eventual receipt of LDs from the EPCC contractor; we view this to be credit neutral to the transaction.
We expect to resolve the Rating Watch in the next few months after TH1 receives the advances from the sponsor and TH2 starts earning energy payments from SESB, in line with our expectation.
RAM’s Rating Watch highlights a possible change in an issuer’s debt rating. It focuses on identifiable events such as mergers, acquisitions, regulatory changes and operational developments that place a rated debt under RAM’s special surveillance. In a broader sense, the Rating Watch covers any event that may result in changes in risk factors relating to the repayment of principal and interest.
Issues are put on Rating Watch when some of the abovesaid events are expected to or have occurred. The Rating Watch, however, does not mean that the rating will inevitably be changed. It only means that RAM is evaluating the rating and a final affirmation is pending. A “positive” outlook indicates that a rating may be raised while a "negative" outlook indicates a possible downgrade. A “developing” outlook refers to unusual situations in which future events are so unclear that the rating may potentially be raised or lowered.
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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