[RAM] RAM Ratings affirms RP Hydro's AA3/Stable sukuk rating

RAM Ratings has affirmed the AA3/Stable rating of RP Hydro (Kelantan) Sdn Bhd’s (RP Hydro or the Issuer) RM975 mil ASEAN Green SRI Sukuk under the shariah principle of Wakalah Bi Al-Istithmar (2023/2043) (Senior Sukuk). 

The rating reflects RP Hydro’s expected sturdy project economics upon the completion of its three small run-of-river hydropower plants (the Plants or the Project) in Kuala Krai and Gua Musang, Kelantan, underscored by the favourable terms of the Renewable Energy Power Purchase Agreements (REPPAs) for the Plants and low offtake risk from a strong counterparty. Jointly owned by Rising Promenade Sdn Bhd and Malakoff Corporation Berhad (Malakoff) through its subsidiary Tuah Utama Sdn Bhd, RP Hydro inked three 21-year REPPAs with Tenaga Nasional Berhad, the sole offtaker, in June 2021 for the generation and sale of electricity from the Plants. With a combined installed capacity of 84 MW, the Plants sit along Sungai Galas at three sites: Kuala Geris (25 MW), Kemubu (29 MW) and Serasa (30 MW).

As of 31 December 2023, the Plants’ overall construction progress of 6% (against the targeted 8%) was largely on track, with initial survey works and basic design finished. The slight variance was mainly due to modifications to the planned access roads, which caused consequential delays such as authority approvals, detailed design finalisation and construction commencement. Under a revised construction plan, the proposed access roads are 69% to 74% shorter than initially envisaged, allowing the Project to be completed by the targeted August 2026, as agreed under the RM915.0 mil fixed-price lump-sum turnkey engineering, procurement, construction and commissioning (EPCC) contract. 

Construction risks are moderated by the EPCC Contractors’ (comprising XD Power Transmission (M) Sdn Bhd, Gezhouba Engineering (Malaysia) Sdn Bhd and CSPDR Malaysia Sdn Bhd) experience and established track record as well as the sizeable time buffer and adequate contingencies incorporated in our stressed scenario. We further draw comfort from Malakoff’s commitment as the main sponsor. RAM believes Malakoff to be highly incentivised to complete the Project as part of its expansion into renewable energy. On completion, the Plants’ long-term power generating ability may be affected by changes in the hydrology of the catchment area owing to excessive logging or climate change, among other factors. 

Our sensitivity assessment assumes a construction completion delay of nine months for all three plants (i.e., completion by May 2027), lower energy output at the 90th percentile based on 25 years’ river flow data at the project site and heftier operating expenditure. RAM’s rating also reflects our expectations that Malakoff will consistently procure standby letters of credit for the equity portion of the Project, the RM30.8 mil contingency sum and the minimum required balance for the Finance Service Reserve Account. 

The sukuk redemption profile was structured to match the projected cash flow generation, resulting in annual finance service coverage ratios (FSCRs) without cash balances mostly exceeding 1.0 time, even in the stressed scenario. Including brought forward cash balances, RP Hydro’s minimum FSCR (post-distribution) of 1.65 times throughout the tenure of the Senior Sukuk is commensurate with an AA3 rating. 

Analytical contacts
L Nurisya Abdullah
(603) 3385 2492

Chong Van Nee, CFA
(603) 3385 2482

Media contact 
Sakinah Arifin 
(603) 3385 2500