MARC Ratings has affirmed its rating of A+IS on UiTM Solar Power Sdn Bhd’s (UiTM Solar) outstanding Green Sustainable and Responsible Investment Sukuk of RM182.3 million and revised the outlook to positive from stable.
The outlook revision reflects the improved operational performance of UiTM Solar’s 50MWac solar photovoltaic plant in Gambang, Kuantan, that is in line with expectations and will improve operational cash flow generation. Since resuming full operations on August 10, 2022, following a lengthy outage period due to significant damage to its gas-insulated switchgear and transformer, the plant has not faced any major operational issues and recorded a high availability of 99.2% in 1H2023. Energy generation also returned to be in line with P90 estimates from April 2023 onwards with improvements in weather and irradiance, following an extended monsoon season between late 2022 and early 2023. The strength of UiTM Solar’s 21-year power purchase agreement with Tenaga Nasional Berhad (TNB), under which the demand risk is eliminated as energy generated by UiTM Solar’s plant will be purchased at a fixed tariff, remains a key rating factor.
In line with plant performance, revenue improved to RM14.7 million in 1H2023. The company’s liquidity position stood at RM28.1 million as at end-June 2023, more than sufficient to cover its upcoming sukuk profit payment of RM5.5 million in October 2023. MARC Ratings notes that UiTM Solar received the maximum RM20.0 million obtainable under its insurance policies which to a large extent reimbursed equipment costs (RM7.5 million) and revenue losses (RM17.8 million) incurred, restoring its liquidity close to pre-outage levels. While there remains outstanding non-delivery payments of RM10.4 million payable to TNB for not meeting the minimum generation requirements in 2022, UiTM Solar expects these to be made on a staggered basis, limiting the impact on its liquidity.
Based on the project’s base case cash flow projections, the minimum and average finance service coverage ratios with cash stand at 2.11x and 2.26x over 2023–2025. Our sensitivity analysis demonstrates that the projected cash flows can withstand moderate stress scenarios of 2.4% plant unavailability, 20% increase in operating expenses, as well as P99 energy generation.