MARC Ratings has extended its MARCWatch Negative placement on UiTM Solar Power Sdn Bhd’s (UiTM Solar) outstanding Green Sustainable and Responsible Investment (SRI) Sukuk of RM192.3 million, where it has been since January 28, 2022.
The rating action reflects MARC Ratings’ concern on the limited time since the 50MWac plant fully resumed its operations on August 10, 2022, for the rating agency to make a conclusive assessment of its performance. The plant had experienced extensive damage to its gas-insulated switchgear and power transformer in November 2021, which had rendered it non-operational until June 2022. It resumed operations at 50% capacity in June and at 100% capacity in early August. We note that since full resumption, the plant has performed in line with P90 projections over the remaining 21 days of August, with a high availability of 99.4% over the same period.
The MARCWatch placement extension also considers the ongoing uncertainty surrounding the quantum and timing of insurance proceeds to partly reimburse equipment costs amounting to RM7.5 million and revenue losses of RM17.8 million during the outage period. The claims are yet to be finalised, pending the outcome of a root cause assessment report that is being prepared.
Based on the project’s revised base case cash flow projections which assume full receipt of insurance proceeds, the minimum and average finance service coverage ratios (FSCR) with cash would remain adequate at 2.35x and 2.55x over 2022-2024. In our sensitivity analysis, we note that liquidity would remain tight in meeting upcoming obligations without the insurance proceeds, taking into consideration the balance outstanding in its designated accounts of RM14.1 million as at end-August 2022, and operational cash flow. We are of the view that UiTM Solar would have to partly enforce a RM23.0 million shareholder’s guarantee from UiTM Holdings Sdn Bhd if sufficient insurance proceeds are not received to meet the six-month minimum required balance in its finance service reserve account (FSRA) by October 27, 2022, for the sukuk obligations of RM16.0 million in April 2023.
Besides the sukuk payment in April, upcoming obligations include sukuk payments of RM5.8 million in October 2022, as well as estimated non-delivery payments of RM9.5 million in 2023 for not meeting 2022’s minimum electricity dispatch requirement under its 21-year power purchase agreement with TNB.
The rating could be uplifted from MARCWatch Negative and reaffirmed at AA-IS/stable if UiTM Solar’s plant continues to record steady operating performance without hitches and if UiTM Solar receives sufficient insurance proceeds to allow the maintenance of a comfortable liquidity buffer for sukuk obligations.
However, the rating could be downgraded in the event of the expected insurance proceeds not materialising and/or a recurrence in equipment failure that causes plant performance to fall substantially below expectations and affect UiTM Solar’s debt servicing ability.