PETALING JAYA: RAM Ratings has assigned a preliminary rating of AA3/Stable to Edra Energy Sdn Bhd’s proposed sukuk wakalah of up to RM5.28 billion in nominal value (2017/2037).
The preliminary rating reflects Edra Energy’s strong project economics, underscored by stable cashflow generation, resulting in a minimum finance service coverage ratio (with cash balances, post-distribution, calculated on payment dates) of 1.50 times under RAM’s sensitised case upon completion of the plant, commensurate with an AA3 rating.
“Given the technology used in the turbine is untested and no other plant of this scale is currently in commercial operation globally, the company is exposed to technology risk. As the plant is under construction stage and equity will be progressively injected into the project throughout the construction period, this also exposes the project to construction-related risk and uncertainty of funding,” RAM co-head of infrastructure and utilities ratings Chong Van Nee said in a statement last Friday.
Edra Energy, an independent power producer (IPP), signed a 21-year power purchase agreement (PPA) with Tenaga Nasional Bhd (TNB). It will design, construct, own, operate and maintain the largest gas power plant in Malaysia, with a capacity of 2,242MW combined-cycle, gas-turbine power plant in Alor Gajah, Malacca.
Proceeds from the proposed sukuk amounting to RM5.21 billion will mainly be used to fund the construction of the plant.
The company is entitled to earn full available capacity payments regardless of the quantum of electricity generated, as long as it meets performance requirements under the PPA.
“Edra Energy can also fully pass through fuel costs to TNB via energy payments received from selling electricity, provided that the plant operates within heat rates stipulated in the PPA. We derive further comfort from the sturdy credit profile of TNB,” said the rating agency.
It noted that the technology risk associated to General Electric Company’s (GE) 9HA.02-model gas turbine (GT) that can achieve an efficiency rate of over 60% will be largely addressed via Edra Energy’s long-term service agreement (LTSA) with GE for the operations and maintenance of the plant’s GTs, steam turbines and generators.
GE will provide further support in respect of the insurability of the plant and a special warranty to cover collateral damages. RAM views GE’s willingness and confidence in providing support as a positive, given its more than five-decade operating track record.
“The company’s debt servicing ability also withstood our conservative assumptions. This includes operational hiccups upon achieving commercial operations and at the end of each contract year block as well as higher operations and maintenance costs subsequent to the expiry of the LTSA,” it said.
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