[RAM] RAM Ratings closely monitoring developments from unexpected downtime at Telekosang Hydro plants

RAM Ratings is closely monitoring developments at Telekosang Hydro One Sdn Bhd’s (TH1 or the Issuer) 24 MW small hydro power plant (Plant 1) and the 16 MW plant (Plant 2) of its sister company, Telekosang Hydro Two Sdn Bhd (TH2), following disclosures of unexpected and extended outages at both plants. This was despite management’s earlier representation in April 2024 that lower electricity outputs at both plants in 1Q 2024 (average plant factor: 45%-52%) were due to the seasonal dry spell and Plant 2’s initial teething issues, with expectations that production will recover when the rainy season starts. RAM currently rates TH1’s RM470 mil ASEAN Green SRI Sukuk (2019/2037) (Senior Sukuk) and RM120 mil ASEAN Green Junior Bonds (2019/2039) at AA3/Stable and A2/Stable, respectively. 

One of Plant 1’s two units has been offline since mid-May 2024. Plant 2 is completely offline, with one generating unit down since early April and the other since early May. Initial findings identified a broken labyrinth ring on the turbine as the cause of the outage at Plant 1 while both units of Plant 2 suffered generator flashovers due to damaged stators. Although the root causes of the equipment failure are still being investigated, the Issuer has commenced rectification works, targeting full restoration of operations by early September 2024 and end-October 2024 at Plant 1 and 2, respectively. 

With an estimated downtime of four to six months, the transaction is anticipated to face a total revenue loss of around RM18 mil. Capital expenditure required for the fabrication of new labyrinth rings and stators (estimated at about RM5 mil) are expected to be borne by TH1’s sponsor, Jentayu Capital Sdn Bhd. The plants could also be subject to penalties for potentially failing to deliver at least 70% of the declared annual availability (or plant factor of 49%) under the respective renewable energy power purchase agreements (REPPAs).

In the immediate term, the Senior Sukuk is supported by cash balances of RM49.9 mil (as of 9 July 2024) which will sufficiently cover scheduled obligations of RM32.2 mil in August 2024 and RM11.9 mil in February 2025. The existing RM12.5 mil bank guarantee (BG) procured by the sponsor, expiring on 7 September 2024, is understood to be in the process of being extended (up to 7 September 2025) to ensure the continued liquidity support for the transaction. TH1 and TH2 may also draw on the RM45 mil performance bonds (expiring end-August 2024) under their respective engineering, procurement, construction and commissioning (EPCC) contracts due to the completion delay. Management is actively pursuing the recovery of liquidated damages (LDs) from the EPCC contractors as well as insurance claims.

RAM will continue to monitor the progress of rectification work as it advances and reassess the credit implication for the Senior Sukuk and Junior Bonds when there is better visibility of the transaction’s liquidity position. 

The rating of the Junior Bonds is notched down from the Senior Sukuk’s to reflect the former’s strong equity-like features and deep subordination to the latter in terms of cashflow priority. The Junior Bonds have been structured as zero-coupon bonds, with repayments starting only in August 2038 and August 2039, after the Senior Sukuk is fully redeemed.


Analytical contacts
Wong Ee Loo
(603) 3385 2521
eeloo@ram.com.my

Chong Van Nee, CFA
(603) 3385 2482
vannee@ram.com.my

Media contact
Sakinah Arifin
(603) 3385 2500
sakinah@ram.com.my