MARC Ratings has removed UiTM Solar Power Sdn Bhd’s rating from MARCWatch Negative placement and concurrently lowered the rating to A+IS from the AA-IS prior to the MARCWatch placement. The rating outlook is negative. The current outstanding is RM192.3 million Green SRI Sukuk.
The rating removal from MARCWatch placement follows moderating concerns on UiTM Solar’s ability to meet upcoming financial obligations. MARC Ratings has been informed that a RM11.0 million bank guarantee will be in place soon to meet the finance service reserve account (FSRA) requirement of a minimum required balance of RM16.0 million to be deposited into the account for sukuk obligations in April 2023. The availability of the bank guarantee, coupled with existing funds of RM5.3 million in the FSRA as at end-October 2022, will remedy the breach of UiTM Solar’s FSRA requirements.
The rating downgrade reflects the company’s weakened liquidity and cash flow coverage metrics from the prolonged shutdown of its 50MWac plant in Gambang, Pahang due to equipment damage. Insurance proceeds for the equipment damage and business interruption of RM20.0 million that were supposed to provide a buffer to liquidity have not fully materialised as at date. In the circumstance, we estimate the company’s forward-looking finance service coverage ratio with cash to be significantly tighter at 1.4x in 2023.
The negative outlook considers UiTM Solar’s thin liquidity buffer and its reliance on consistently healthy operating cash flows from its plant to meet working capital and financial obligations. We wish to highlight that thus far, the plant has managed to record operational performance largely in line with projections since resuming operations at full capacity in mid-August 2022, averaging an availability of 99.1% up to end-October 2022. However, a longer period of sustained performance is required to rebuild its reserves.
The rating agency will continue to monitor developments and take the appropriate rating action when necessary. The rating outlook would be revised to stable if the plant continues to demonstrate operational performance in line with P90 projections and strengthens its liquidity buffer. Conversely, the rating could be downgraded if operational hitches impact cash flow generation.