RAM Ratings reaffirms Tadau Energy’s AA3 sukuk rating

KUCHING: RAM Ratings has reaffirmed the AA3/Stable rating of Tadau Energy Sdn Bhd’s (Tadau Energy) RM250 mil SRI Sukuk Programme (2017/2033). The sukuk stands out as the world’s first sustainable and responsible investment (SRI) green sukuk.

The rating reflects Tadau’s healthy debt-servicing ability, underscored by steady cashflow from the Company’s 50 MW solar photovoltaic (PV) plants in Kudat, Sabah.

Since achieving full commercial operations date on September 26, 2018, the plants generated a net electrical output of 49,851 MWh in the first half of 2019 that surpassed RAM’s projection by 33.9 per cent for the same period.

The plants are expected to maintain their outstanding performance, provided there are no major unforeseen outages.

“Despite our sensitised cashflow analysis, which assumes lower energy output due to unforeseen outages, Tadau’s debt-protection metrics will remain healthy with respective minimum and average annual FSCRs of 1.50 and 1.83 times throughout the transaction’s tenure,” it said in a statement.

“We expect Tadau to adhere to its distribution covenant on a forward-looking basis throughout this period, as opposed to only in the year of assessment. Any excessive unexpected opex/capex or distribution to shareholders will exert downward pressure on the rating.

“Notably, Tadau continues to enjoy priority of despatch, as its long-term power purchase agreements ( PPAs) with Sabah Electricity Sdn Bhd require the latter to accept and purchase all the energy generated by the plants, up to a specified limit.

“This helps moderate the absence of fixed availabilitybased revenue typically earned by thermal power plants. The absence of moving parts and combustion functions further simplifies the operations and maintenance (O&M) of the Plants relative to thermal power plants.”

Despite the laudable performance of the plants, Tadau is still exposed to solar irradiance variability risk and plant performance risk. A longer operating track record would provide a better gauge of the quality of the O&M work and the sustainability of the Plants’ energy output.

“We note that Unit 2 achieved commercial operations with an Established Capacity (EC) of 47.17MW, slightly off the mark from the expected 48MW. Tadau also faces the risk of a reduction in energy rates as there is a provision in its PPAs for a downward revision – if there is any saving in terms of construction and financing costs upon the plants’ COD and a year thereafter.”