RAM Ratings maintains Musteq Hydro Islamic Bonds at A3, with a negative outlook

Published on 29 July 2011

RAM Ratings has maintained Musteq Hydro Sdn Bhd’s (“Musteq Hydro” or “the Company”) RM108 million Al-Bai’ Bithaman Ajil Fixed-Rate Serial Bonds (2002/2017) (“Islamic Bonds” or “ABBA Bonds”) at A3, with a negative outlook. Musteq Hydro, an independent power producer (IPP), has been licensed to build, own and operate a 20-MW hydro power plant at Sungai Kenerong, Kelantan (the Plant). Under a Power Purchase Agreement with Tenaga Nasional Berhad (TNB), Musteq Hydro is obliged to generate and sell electricity exclusively to TNB for 30 years until 19 December 2030.





In our press release dated 24 March 2011, RAM Ratings has noted the likelihood that Musteq Hydro will not be able to fully fund the debt service reserve account (DSRA) in late July every year throughout the Bonds’ tenure. In relation to this, we have been informed by management that the bondholders have agreed in principle to grant the Company a temporary 3 months waiver on the requirement to fill up the DSRA on 29 July 2011; pending the bondholders’ approval via a circular resolution to formalise the matter.

Elsewhere, we understand from management that plans to refinance the ABBA Bonds are in progress. In this regard, RAM Ratings reiterates that based on our sensitised projection, the Company’s weak debt-servicing ability in FYE 31 December 2016 (FY Dec 2016) and FY Dec 2017 still persists; as such, the rating would come under further downward pressure in the event the refinancing exercise is not completed in the near-term, or operational problems significantly hamper the Company’s cash-generating aptitude.

Media contact
Michael Ti
(603) 7628 1015
michael@ram.com.my