[RAM] RAM Ratings reaffirms Solar Management (Seremban)'s ASEAN Green SRI Sukuk rating

RAM Ratings has reaffirmed the AA3/Stable rating of Solar Management (Seremban) Sdn Bhd’s (SMS or the Company) RM260 mil ASEAN Green SRI Sukuk (2020/2038) (the Sukuk). The rating is premised on better than expected energy output from the Company’s 50MWac solar photovoltaic (PV) plant in Rembau, Seremban (the Plant). The Plant generated total net energy output (NEO) of 82,929 MWh in 2020, exceeding our sensitised projection of 75,255 MWh (+10.2%). The NEO is equivalent to 99.4% of the Plant’s declared annual quantity (DAQ) – the forecasted annual electricity output submitted to Tenaga Nasional Berhad (TNB) in accordance with the Power Purchase Agreement between TNB and the Company. The agreement requires the Plant to meet at least 70% of the DAQ. 

Strong energy output contributed to SMS’s better financial showing in FY Dec 2020. The Company’s revenue and operating profit before depreciation, interest and tax increased 9.4% and 14.8% y-o-y to RM35.7 mil and RM27.1 mil, respectively (FY Dec 2019: RM32.6 mil and RM23.6 mil). Pre-tax loss was a narrower RM1.6 mil compared to RM4.8 mil in FY Dec 2019. Healthy energy output and cost control practices are key to the Company’s improving financial performance.

Besides minor ponding issues, lightning damage to PV modules and a one-off electrical box transformer flare-up incident over the past one year’s operations, the Plant was available for a commendable 99.4% in 2020. Its good performance continued into the first four months of 2021 with a cumulative NEO of 29,008 MWh, on track to meeting at least 70% of the Plant’s 2021 DAQ. Based on our stressed scenario, we expect SMS to record minimum and average annual finance service coverage ratios (with cash balances) of 1.52 times and 1.85 times for the remaining tenure of the Sukuk. This is in line with the requirements for an AA3 rating. Our sensitised cashflow analysis assumes lower energy output due to further unforeseen outages, higher degradation and heftier operating expenditure. 

Despite robust energy output and satisfactory plant maintenance, the Plant remains exposed to solar irradiance variability, legal risk arising from land conversion issues as well as single-project and regulatory risks. A longer operating track record would provide a better gauge of the quality of operations and maintenance and the sustainability of the Plant’s energy output. 

Analytical contacts
Yip Chee Meng
(603) 3385 2516

Chong Van Nee, CFA
(603) 3385 2482