P R E S S A N N O U N C E M E N T
FOR IMMEDIATE RELEASE
MARC AFFIRMS SINAR KAMIRI'S RATING AT AA-IS WITH A STABLE OUTLOOK
MARC has affirmed its AA-IS rating on Sinar Kamiri Sdn Bhd's Green SRI Sukuk Wakalah of up to RM245.0 million. The outlook on the rating is stable.
Sinar Kamiri is undertaking the development of a greenfield solar power generation facility with a capacity of 49.0MWac in Sungai Siput, Perak. The rating primarily reflects Sinar Kamiri's healthy project fundamentals that are underpinned by a 21-year solar power purchase agreement with Tenaga Nasional Berhad (TNB) under which energy generated by Sinar Kamiri's solar power plant up to a certain quantity will be purchased by TNB at a fixed tariff.
The project is expected to achieve commercial operations date (COD) by November 30, 2018, a three-month delay from the initial scheduled COD (SCOD) on August 31, 2018. The delay has been partly attributed to issues relating to plant construction and end-testing of TNB interconnection facilities. As at end-October 2018, the plant's overall construction progress stood at 96.2% with the outstanding works mainly related to testing and commissioning before achieving COD. MARC notes that the plant has already achieved initial operation on November 2, 2018, and therefore any further delay to TNB's walkaway event date of February 27, 2019 is highly unlikely.
Capex during construction has remained within budget with a slight increase in development expenses at the plant. Additional expenses incurred were met by funds from the contingency buffer, higher interest income as well as savings from the zerorisation of GST effective June 1, 2018. While Sinar Kamiri is liable to pay liquidated damages (LD) to TNB given the failure to achieve SCOD, the payments of RM49,000 for each day of delay from the SCOD are expected to be recovered from engineering, procurement and construction contractor Entrutech Sdn Bhd. MARC understands that TNB has not given any indication on the LDs payable although the company is contractually bound to pay.
The rating is moderated by the variability of solar resource which determines the amount of electricity generated. Sinar Kamiri has utilised internationally used data for its cash flow forecast. The data is consistent with solar farms in an equatorial environment. The operations and maintenance (O&M) works will be undertaken by Mudajaya Facilities Management Sdn Bhd, which is expected to draw expertise from Mudajaya group's experience in managing a 10MW solar power plant in Gebeng, Pahang. The O&M job scope of a solar power plant is relatively less complicated compared to a conventional power plant, which mitigates operational risks.
Sinar Kamiri is also covered by equipment warranties that are in line with acceptable industry standards. A maintenance reserve amounting to RM10.0 million will be built up over 10 years starting from a year after the COD is achieved to cover contingencies for major maintenance works including the replacement of solar panels and inverters. Any withdrawals from the reserves will be replenished over a period of three years from the date of withdrawals.
Under MARC's sensitised cases, the company would be able to comply with the minimum financial service cover ratio with cash of 1.25x throughout the sukuk tenure. The sensitivity includes non-receipt of GST input tax refunds of RM10.6 million, plant unavailability of 2.4%, and LDs payable to TNB (without LD receivables from EPC). Notably, Sinar Kamiri would need to rely on brought-forward cash given that the FSCR (without cash balances) falls below 1.00x in some years.
The stable outlook incorporates the expectation that the project will achieve COD before the walkaway event date and generate stable income streams that are supportive of project economics.
Contacts: Wan Abdul Muiz Wan Abdul Ghafar, +603-2717 2939/ muiz@marc.com.my; Hari Vijay, +603-2717 2937/ harivijay@marc.com.my.
November 27, 2018
[This announcement is available in MARC's corporate website at http://www.marc.com.my]
--- DISCLAIMER ---
This communication is provided by Malaysian Rating Corporation Berhad (MARC) on the basis of information believed by MARC to be accurate and reliable as derived from publicly available sources or provided by the rated entity or its agents. MARC, however, has not independently verified such information and makes no representation as to the accuracy or completeness of such information. Any assignment of a credit rating by MARC is solely to be construed as a statement of its opinion and not a statement of fact. A credit rating is not a recommendation to buy, sell, or hold any security.
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