[RAM] RAM Ratings affirms AA2 rating of reNIKOLA Solar II's ASEAN Green SRI Sukuk Programme

RAM Ratings has affirmed the AA2/Stable rating of reNIKOLA Solar II Sdn Bhd's (reNIKOLA Solar II or the Issuer) RM390 mil ASEAN Green SRI Sukuk Programme (2023/2041). 

The rating action is premised on the robust operational performance and strong consolidated cashflow generation of the two solar photovoltaic (PV) plants (the Plants), that underpins the Issuer's sturdy debt coverage. The Plants – a 30 MWac facility in Kuala Muda (operational since 22 March 2022) and a 30 MWac plant in Machang (operational since 5 April 2023) are respectively owned by the Issuer's sister companies, RE Kuala Muda Sdn Bhd and RE Machang Sdn Bhd (Project Companies). The favourable terms of the Project Companies' power purchase agreements (PPAs) with offtaker, Tenaga Nasional Berhad (TNB, issues rated AAA/Stable by RAM), also support the rating.

Based on the operating statistics made available to RAM up to May 2024, the Plants have recorded full availability without any unscheduled outages since it commenced operations. In aggregate, both Plants' net energy output in 2023 stood at 109,804 MWh, exceeding RAM's sensitivities by 3.8%. The energy production also surpassed the PPAs' required minimum 70% of the declared annual quantity (DAQ), at 87.1% of consolidated DAQ. The Plants' output stayed resilient in 5M 2024, outperforming our expectations by 7.8% and reaching 93.4% of the seasonally prorated DAQ for this period. We expect the Plants to maintain healthy performances moving forward. 

Our sensitised cashflow analysis incorporating lower net electrical output and heightened operating expenditure, indicates that the Issuer is projected to maintain minimum and average annual finance service coverage ratios (with cash balances, post-distribution) of 1.65 times and 1.95 times, respectively, over the Sukuk's remaining tenure. This is commensurate with an AA2 rating. As with other solar farms, the Plants are exposed to solar irradiance variability and operational issues. The concession-based business also faces regulatory risk, despite the federal government's favourable stance on renewable energy projects.

Earlier on 9 May 2024, the Project Companies terminated the Plants' engineering, procurement, construction and commissioning (EPCC) contracts after receiving sukukholders' consent and claiming RM84.5 mil for delay and performance related liquidated damages. This resulted in a counterclaim of RM68 mil from the EPCC contractors. The evidential hearing dates for arbitration proceedings are scheduled for October and November 2026. Our cashflow projections do not account for any recovery or unexpected cash outflows from this development. We will reassess the impact when there is more clarity on the resolution of the dispute.

reNIKOLA Solar II is a wholly owned subsidiary of reNIKOLA Holdings, which is in turn 55% owned by reNIKOLA Sdn Bhd and 45% owned by B. Grimm Power Sdn Bhd (a subsidiary of B. Grimm Power Public Co. Ltd.). The Sukuk proceeds were primarily used to refinance the development costs of the Plants and to reimburse the cost of three parcels of land, held by the Issuer's sister companies (Land Companies). Intercompany financing agreements executed between the Issuer, the Project Companies and Land Companies govern the flow of funds, ensuring timely profit and principal payments by the Issuer.

 

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

Zachary Tan
(603) 3385 2612
zachary@ram.com.my

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