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RAM Ratings affirms AA3 rating of Ranhill Solar Ventures’ sukuk
Published on 07 Aug 2024.
RAM Ratings has affirmed the AA3/Stable rating of Ranhill Solar Ventures Sdn Bhd’s (the Issuer) Sukuk Murabahah Programme of up to RM310 mil (2022/2042) (the Sukuk). The affirmation is based on the Issuer’s strong cashflow coverage and liquidity profile, which is supported by the 50 MWac solar photovoltaic (PV) farm (the Plant) of its sister company, Ranhill Solar I Sdn Bhd, in Bidor, Perak.
The Plant was commissioned on 7 February 2024 with no cost overruns and ahead of our projection. The early start of operations mitigated the negative cashflow impact from initial shortcomings in the maintenance of the Plant. In its first four months of operations up to end-May 2024, the Plant’s electricity output fell short of our prorated projection (-4%) and the declared annual quantity (-11%) due to dusty solar PV panels that hindered operational efficiency. A newly established in-house operation and maintenance (O&M) team is proactively improving the Issuer’s O&M methods to boost power production. Though new to large-scale solar plants, we take comfort from the experience of the larger Ranhill Utilities Berhad in managing thermal energy plants that are operationally more complex. Still, we highlight that it will be crucial for Ranhill Solar I to ensure diligent maintenance for satisfactory long-term performance.
Overall, we view Ranhill Solar I’s internal O&M arrangement (from its earlier contract with a related company) to be neutral to the transaction. The early termination of its O&M agreement does not involve monetary penalties, although Ranhill Solar I will no longer be able to rely on the performance guarantee. Our cashflow assessment has not considered such benefit in deriving the sukuk rating.
Until a longer operating track record is observed, we have maintained our cashflow sensitivity assumptions including lower energy generation and higher operating expenses than the base case. The Issuer’s credit standing, as measured by the projected consolidated annual finance service coverage ratio (with cash balances, post-distribution), remains strong at a minimum of 1.62 times.
Over the period in review, we noted some unintentional lapses by Ranhill Solar I in meeting covenants of the Sukuk. Once alerted, these were promptly addressed by management and are not viewed to be material governance risk. That said, we expect the management to be mindful of full adherence to the transaction’s financing covenants going forward.
In terms of other risks, the Plant is exposed to solar irradiance variability and operational issues like other solar farms. The Issuer’s concession-based business also faces regulatory risk, despite the federal government’s favourable stance on renewable energy projects.
Analytical contacts
Chu Jia Ying
(603) 3385 2519
jiaying@ram.com.my
Chong Van Nee, CFA
(603) 3385 2482
vannee@ram.com.my
Media contact
Sakinah Arifin
(603) 3385 2500
sakinah@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
© Copyright 2024 by RAM Rating Services Berhad
