Posted Date: May 14, 2020

MARC has assigned a preliminary rating of AA-IS to Leader Energy Sdn Bhd's (Leader Energy) proposed ASEAN Green Sustainable and Responsible Investment (SRI) Sukuk Wakalah of up to RM260.0 million. The rating outlook is stable.

Leader Energy owns two solar power projects in Kuala Muda, Kedah, namely Leader Solar Energy Sdn Bhd (LSE I; 29.0MWac) and Leader Solar Energy II Sdn Bhd (LSE II; 20.0MWac) with a combined capacity of 49MWac. LSE I and LSE II achieved commercial operation dates on October 11, 2018 and February 11, 2020. Proceeds from the ASEAN Green SRI Sukuk Wakalah will be utilised to part finance and/or part reimburse the total development cost of LSE I of RM182.2 million and LSE II of RM118.4 million.

The preliminary rating reflects Leader Energy's strong projected cash flow coverage on the back of energy payments from offtaker Tenaga Nasional Berhad under a 21-year Power Purchase Agreement with the project companies, LSE I and LSE II. The rating also incorporates the strength of project sponsor HNG Capital Sdn Bhd (HNGC) which wholly owns Leader Energy. HNGC has been involved in the power sector since 1994, developing and operating power plants in Cambodia and Vietnam, with a track record of combined generating capacity of 235MW for coal-fired power plants and 49.5MW for hydropower plants. Moderating the rating is the risk of uncertainty in solar irradiance and plant performance, which can impact the amount of energy generated.

For full year 2019, LSE I recorded revenue generation that exceeded the P90 forecast by 7.1%, despite a temporary setback during production in April 2019 which has since been rectified. Leader Energy is undertaking the operations and maintenance (O&M) of the plants; any O&M risk is expected to be mitigated by the expertise within the group. Under MARC's sensitised scenario, Leader Energy's minimum and average finance service cover ratio (FSCR) of 1.64x and 2.02x are strong. Providing further cash flow protection is the post-distribution FSCR of 1.50x throughout the tenure of the ASEAN Green SRI Sukuk Wakalah.

Leader Energy has incorporated a more stringent minimum Financial Service Reserve Account requirement of next 6 months' profit payment and next 12 months' principal due. Cash flow generated from its two existing operating plants lends support to Leader Energy's ability to meet these obligations.

As electricity production is classified as an essential service, the plants' operations have not been affected by the imposition of the Movement Control Order following the COVID-19 outbreak.

Lim Wooi Loon, +603-2717 2943/ wooiloon@marc.com.my;
Sharidan Salleh, +603 2717 2954/ sharidan@marc.com.my

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