MARC Ratings has extended its MARCWatch Negative placement on UiTM Solar Power Sdn Bhd’s (UiTM Solar) outstanding RM202.3 million Green SRI Sukuk. The previous placement was made on January 28, 2022, due to the uncertain timing and implementation risk involved in restoring operations at its plant following unexpected damages to its gas-insulated switchgear (GIS) and power transformer.
The extension considers a 5-week delay in the estimated resumption date to June 2022 from the initial early May 2022, caused by additional time taken to assess the viability of repairing the transformer, as well as the ongoing lockdown in Shanghai which has prevented the GIS replacement that is manufactured there from being delivered to its site in Gambang, Pahang. The procurement order for a transformer replacement available locally was submitted on March 14, 2022, after the damage was found to be too extensive to repair. The plant would be able to resume operations at 50% generation capacity should the transformer replacement work be completed according to the new timeline before the new GIS is delivered.
As a result of the delays, estimated losses from non-delivery payments have risen to RM8.1 million from RM3.0 million in the previous update. Estimated revenue losses have also increased to RM20.8 million from RM15.6 million. These losses remain cushioned by UiTM Solar’s liquidity position (cash and cash equivalents of RM35.7 million as at end-March 2022), which is sufficient to cover sukuk obligations of RM16.0 million due on April 27, 2022. Liquidity is further supported by potential insurance receipts of up to RM20.0 million, depending on the final insurer’s report, as well as a shareholder’s guarantee of RM23.0 million to meet shortfalls in the finance service reserve account. We understand that the guarantee will be renewed to cover a 6-month period after the resumption of operations.
The MARCWatch placement would be resolved upon resumption of plant operations. We expect the operational losses to 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 further delays to restore operations resulting in a significant weakening of key project metrics. The sukuk carried a AA-IS/stable rating prior to being placed under MARCWatch.