Rating action     
MARC Ratings has affirmed its AA-_IS rating on UiTM Solar Power Dua Sdn Bhd’s (UiTM Solar Dua) outstanding Green Sustainable and Responsible Investment (SRI) Sukuk of RM97.0 million with a stable outlook.

Rationale     
The rating affirmation is mainly premised on the strength of the 21-year power purchase agreement (PPA) between UiTM Solar Dua and Tenaga Nasional Berhad (TNB) under which the latter will purchase energy generated from the plant at a fixed tariff, therefore mitigating demand risk. The rating also considers the plant’s operational performance that is within expectation.     

In 1H2022, energy generation from the plant was at 20,335MWh, in line with the P90 projection. Accordingly, UiTM Solar Dua recorded revenue of RM7.6 million, which is 50.1% of the full year projected revenue. Nonetheless, given the impact of the monsoon season on solar irradiance in the second half of the year, the plant’s ability to meet the full year P90 projection in 2022 would be challenging. This was evident in 2021 when energy generation was 3.3% lower than projected due to the monsoon. The variability of solar resources at the site remains a moderating factor to the rating.     

For 1H2022, UiTM Solar Dua generated cash flow from operations (CFO) of RM3.1 million. Its designated account balances of RM17.7 million as at end-August 2022 is more than sufficient to meet the sukuk repayment of RM5.0 million in March 2023. Under base case projections, the minimum and average pre-distribution finance service coverage ratios (FSCR) are 2.64x and 3.53x. Sensitivity analysis indicates that the FSCRs would remain above covenanted levels under moderate stress scenarios of lower energy production, higher operating expenses, and lower plant availability.     

Rating outlook     
The stable outlook reflects our expectation that the plant’s operational performance will be broadly in line with projections and UiTM Solar Dua’s financial metrics will remain commensurate with the rating.     

Rating trajectory     

Upside scenario     
We do not envisage a rating upgrade in the near term. The rating could be improved if the plant demonstrates a consistent track record of strong operating performance while building up and maintaining a strong liquidity buffer.

Downward scenario     
Downward pressure on the rating would materialise if plant performance falls substantially below expectations, such that UiTM Solar Dua’s debt service coverage metrics are significantly impacted.