RAM Ratings lifts Rating Watch, affirms ratings of Telekosang Hydro One’s Senior Sukuk and Junior Bonds with stable outlook

Published on 02 May 2024.

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RAM Ratings has lifted the Negative Rating Watch on the 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), respectively. 

The rating action is premised on the successful reinstatement of the transaction’s liquidity position after TH1’s sponsor (Jentayu Capital Sdn Bhd) provided the Issuer with a liquidity injection of RM25 mil. The top-up remedied the shortfall in the Senior Sukuk’s Finance Service Reserve Account to the transaction’s required minimum balance of RM32.2 mil, within the period approved by the sukukholders. As of 30 April 2024, TH1 had cash balances of RM43.17 mil.

The stable outlook reflects our expectation that TH1 and its sister company, Telekosang Hydro Two Sdn Bhd (TH2) (collectively, the Group) will generate a steady cashflow stream throughout the tenures of the Group’s Renewable Energy Power Purchase Agreements (REPPAs) after TH1’s 24 MW small hydro power plant (Plant 1) and TH2’s similar 16 MW plant (Plant 2) are fully commissioned. We also expect energy payments from Sabah Electricity Sdn Bhd (the sole offtaker) to TH2 (including all outstanding payments since commercial operations started on 26 December 2023) to commence soon after official approval is received from the Energy Commission of Sabah. The combined cashflow of TH1 and TH2 supports the repayment of the Issuer’s debt obligations. Under the sensitised case, the Group is projected to record robust minimum and average FSCRs of 1.99 times and 2.40 times throughout the tenure of the Senior Sukuk. 

Liquidated damages (LDs) owed by the engineering, procurement, construction and commissioning (EPCC) contractor remain outstanding amid the conclusion of minor defective works. While the Issuer is entitled to maximum LDs of RM67.5 mil as provided for in the EPCC contract for prolonged completion delays, the final amount is still being negotiated with the EPCC contractor. Our analysis excludes this sum in view of the uncertainties.

The ratings remain supported by the favourable terms of the REPPAs, strong project fundamentals and the management’s expertise in hydro power generation. Despite minimal demand risk, the Group faces uncertain rainfall patterns and river flows, which ultimately determine the plants’ ability to generate power. Plant 1 has demonstrated a favourable performance since commercial operation commences, with an average plant factor of about 80% in 2023 against our expectations of 75%. In 1Q 2024, the seasonal dry spell reduced the electricity output of both plants (average plant factor: 45%-52%), which should however recover when the rainy season begins. Plant 2’s performance was further constrained by initial teething issues. Telekosang is also exposed to potential future development in the plants’ catchment area or climate change that could alter hydrological conditions. However, this concern is partly mitigated by the forest reserve status of the catchment area. 

The rating of the Junior Bonds is notched down from that of the Senior Sukuk to reflect the former’s strong equity-like features and deep subordination to the latter in terms of cashflow priority. The Junior Bonds have been structured as zero-coupon bonds, with repayments starting only in August 2038 and August 2039, after the Senior Sukuk is fully redeemed.


Analytical contacts
Wong Ee Loo
(603) 3385 2521

Chong Van Nee, CFA
(603) 3385 2482


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.

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Ratings on Telekosang Hydro One Sdn Bhd