RAM Ratings reaffirms NUR Power’s sukuk ratings at AAA(bg) and AAA(fg)

Published on 09 July 2013

RAM Ratings has reaffirmed the respective AAA(bg) and AAA(fg) ratings of Tranche 1 and Tranche 2 of NUR Power Sdn Bhd’s (“NUR Power” or “the Group”) RM650 million Guaranteed Sukuk Mudharabah (2012/2027) (“sukuk”); both the long-term ratings have a stable outlook. NUR Power is an investment-holding company with subsidiaries involved in the generation, distribution and sale of electricity to tenants of Kulim Hi-Tech Park (“KHTP”) in Kulim, Kedah, under a 30-year licence which expires on 16 September 2028.

The enhanced ratings reflect an irrevocable and unconditional bank guarantee from Maybank Islamic Berhad and a financial guarantee from Danajamin Nasional Berhad, which enhance the credit profile of the sukuk beyond NUR Power’s stand-alone credit strength.

NUR Power’s standalone credit strength is reflective of the Group’s exposure to sector-concentration risk as its performance is highly dependent on the performance of its big-load industrial customers that are engaged in high-technology industries. NUR Power’s top 5 customers, which contributed 79% of its electricity sales in fiscal 2012, come from the cyclical electric and electronic and solar-panel manufacturing industries. The Group also faces customer-concentration risk, with 30% of its electricity sales emanating from its single largest customer, First Solar Malaysia Sdn Bhd (“First Solar”). Although electricity take-up by First Solar dropped 22.87% y-o-y in 2012, the Group’s overall power sales fell marginally supported by increased power take-up by existing customers and a new customer.

As NUR Power lacks the flexibility to adjust its tariff in line with increases in its cost structure, it is susceptible to margin compression in the event that it is required to purchase power from Tenaga Nasional Berhad (“TNB”) at an elevated cost to meet demand at KHTP. Furthermore, the Group’s generation assets face capacity deration during high ambient temperature. The resultant net capacity after deration from the nominal 220 MW capacity would still amply cover the current maximum demand at KHTP of 182 MW during the first 5 months of 2013. Nonetheless, power imports from TNB are necessary during scheduled and unscheduled maintenance of the Group’s generation assets.

NUR Power’s capital structure improved significantly after the completion of a debt-restructuring exercise in June 2012, with gearing ratio of 0.95 times or debt burden of RM650 million as at end-December 2012. Going forward, the Group’s gearing ratio should improve or hover at the current level, given the limitation on further indebtedness and restrictions on distributions to shareholders. Its funds from operations debt coverage ratio is expected to remain modest at an average 0.16 times in the next 5 years.

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Jocelyn Chiang

(603) 7628 1124

jocelyn@ram.com.my