In the previous rating update issued on October 11, 2022, MARC Ratings indicated its ongoing concerns on UiTM Solar Power Sdn Bhd that despite the full resumption of operations of its 50MWac solar power plant in Gambang, Pahang in August 2022, the company is reliant on insurance proceeds and/or third-party guarantees to meet future financial obligations until residual operational cash flows reach sufficient levels. MARC Ratings had maintained its rating on UiTM Solar’s RM192.3 million sukuk on MARCWatch Negative.
The rating agency now wishes to highlight that following a further delay in receiving insurance proceeds, the company has not met the six-month minimum required balance in its finance service reserve account (FSRA) for upcoming sukuk obligations totalling RM16.0 million in April 2023. It has now requested for a 30-day indulgence from sukukholders until November 26, 2022. The insurance proceeds — for equipment damage and loss of income — are in relation to the extensive equipment damage at the power plant at end-2021. While a shareholder guarantee from holding company UiTM Holdings Sdn Bhd for RM23.0 million has been in place, UiTM Solar has not drawn on the guarantee to meet its FSRA requirement; UiTM Holdings is instead in the process of procuring a bank guarantee for RM15.0 million to meet this obligation. However, there have been administrative delays to the issuance of the guarantee that are being resolved.
We note that as at date, UiTM Solar has been awarded 10% of its insurance claim of RM6.0 million on the equipment damage, with the balance expected to come in by November 23, 2022, along with the claims on business interruption of up to RM14.0 million. If the said sums are received or if the bank guarantee is issued within the indulgence period, the FSRA breach would be remedied. This notwithstanding, MARC Ratings views with renewed concerns the lack of timely commitment from the project sponsor to meet contingencies that has led to the breach.
The rating agency will continue to monitor the developments to take the appropriate rating action when resolving the MARCWatch Negative placement before its expiry on January 11, 2023. The rating would be downgraded by multiple notches if the FSRA requirement breach is not remedied and maintained on MARCWatch Negative. Even if the breach is remedied, MARC Ratings would reassess UiTM Solar’s key business and financial risk factors in arriving at the rating action.