MARC Ratings has extended its MARCWatch Negative placement on UiTM Solar Power Sdn Bhd’s outstanding RM202.3 million Green SRI Sukuk pending full resumption of operations at its plant.
The initial placement was made on January 28, 2022, due to the cessation of operations at the plant following damage to its gas-insulated switchgear (GIS) and power transformer. We note that the plant has resumed operations at 50% capacity since June 10, 2022, following the installation of a new transformer and temporary rectification works being undertaken on its existing GIS. However, the resumption at full capacity can only be achieved by replacing the existing GIS with a new one, the delivery of which from the original equipment manufacturer in Shanghai was hampered by a city-wide lockdown. We understand that the replacement had arrived on July 20, 2022, with installation set to begin on July 28, 2022. The plant is expected to return to full capacity on August 10, 2022.
Notwithstanding the delays, UiTM Solar has sufficient liquidity of about RM14.4 million to meet its near-term operational and financial obligations. It has upcoming sukuk obligations of RM5.8 million in October 2022. Liquidity is further supported by potential insurance receipts, as well as a shareholder’s guarantee of RM23.0 million to meet shortfalls in the finance service reserve account, if any. The guarantee covers a six-month period after full resumption of operations.
MARC Ratings will monitor the progress of operational resumption and subsequent plant performance with a view of uplifting the MARCWatch placement by end-September 2022. The rating would be maintained should operational losses be sufficiently mitigated by the company’s current liquidity buffer, without material impact on its credit profile. However, the rating could be lowered upon upliftment in the event of a significant weakening of key project metrics. The sukuk carried a AA-IS/stable rating prior to being placed under MARCWatch.