CREDIT ANALYSIS REPORT

LEADER ENERGY SDN BHD - 2020

Report ID 60522 Popularity 339 views 25 downloads 
Report Date May 2020 Product  
Company / Issuer Leader Energy Sdn Bhd Sector Infrastructure & Utilities - Solar
Price (RM)
Normal: RM500.00        
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Rationale
MARC has assigned a preliminary rating of AA-IS to Leader Energy Sdn Bhd’s (Leader Energy) proposed ASEAN Green Sustainable and Responsible Investment (SRI) Sukuk Wakalah of up to RM260.0 million. The outlook on the rating is stable.

Leader Energy owns two solar power projects in Kuala Muda, Kedah, namely Leader Solar Energy Sdn Bhd (LSE I; 29.0MWac) and Leader Solar Energy II Sdn Bhd (LSE II; 20.0MWac) with a combined capacity of 49MWac. LSE I and LSE II achieved commercial operation dates (COD) on October 11, 2018 and February 11, 2020. Proceeds from the ASEAN Green SRI Sukuk Wakalah will be utilised to part finance and/or part reimburse the total development cost of LSE I of RM182.2 million and LSE II of RM118.4 million.

The preliminary rating reflects Leader Energy’s strong projected cash flow coverage on the back of the energy payments from offtaker Tenaga Nasional Berhad (TNB) under a 21-year Power Purchase Agreement (PPA) with each of the project company – LSE I and LSE II. The rating also incorporates the strength of project sponsor HNG Capital Sdn Bhd (HNGC) which wholly owns Leader Energy. HNGC has been involved in the power sector since 1994, developing and operating power plants in Cambodia and Vietnam, with a track record of combined generating capacity of 235MW for coal-fired power plants and 49.5MW for hydropower plants. Moderating the rating is the risk of uncertainty in solar irradiance and plant performance, which can impact the amount of energy generated.

For full year 2019, LSE I recorded revenue generation that exceeded the P90 forecast by 7.1%, despite a temporary setback in production due to pest damage on one of the inverters in April 2019 which has since been rectified. Leader Energy is undertaking the operations and maintenance (O&M) of the plants; any O&M risk is expected to be mitigated by the expertise within the group. Under MARC’s sensitised scenario, Leader Energy’s minimum and average finance service cover ratios (FSCR) of 1.64x and 2.02x are strong. These are above the minimum covenanted FSCR of 1.25x. Providing further cash flow protection is the post-distribution FSCR of 1.50x throughout the tenure of the ASEAN Green SRI Sukuk Wakalah. In its sensitivity assessment, MARC incorporated a lower energy generation and operation cost increase. 

The rating agency also observes that Leader Energy has incorporated a more stringent minimum Financial Service Reserve Account (FSRA) requirement of next 6 months’ profit payment and next 12 months’ principal due. Cash flow generated from its two existing operating plants lends support to Leader Energy’s ability to meet these obligations.

Following the global COVID-19 pandemic, the government has imposed Movement Control Order on all businesses except essential services. As electricity production is classified as an essential service, the plants’ operations have not been affected. 

The stable outlook reflects MARC’s expectation that Leader Energy will continue to maintain the plants’ operational performance and generate stable income streams that are supportive of project fundamentals.  

Major Rating Factors

Strengths
Demand risk mitigated by PPA terms;
Strong project fundamentals; and
Project sponsor’s healthy track record in power projects.

Challenge/Risk
Variability of solar resource.
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