MARC Ratings has affirmed its AA-_IS rating on Sinar Kamiri Sdn Bhd’s outstanding RM200.0 million Green Sustainable and Responsible Investment (SRI) Sukuk Wakalah. The outlook on the rating is stable. 

The performance of Sinar Kamiri’s 49MWac solar power plant remained within expectations in 2022. Electricity generation was marginally lower than P90 projections by 1.7%, mainly due to lower irradiance at the Sungai Siput project site. We note that the plant has faced minimal hitches since commencement of operations, and is expected to record operational performance within forecast going forward.

For FY2022, the company posted a slightly lower revenue of RM32.5 million against the budgeted RM33.0 million. Cash flow from operations (CFO) of RM28.0 million remains sufficient to cover sukuk obligations, with finance service coverage ratio (FSCR) of 1.02x excluding cash balances. Cash balances stood at RM19.0 million as at end-January 2023 and provides ample buffer to meet the upcoming sukuk profit payment of RM5.8 million in July 2023.

Under base case projections that include an assumption of no dividend payouts over the next three years, the project is expected to achieve minimum and average FSCRs of 2.46x and 2.61x with cash throughout the sukuk tenure. The company is required to maintain a minimum post-distribution FSCR of 1.50x. The projected cash flows can withstand moderate stress scenarios such as plant unavailability of 2.4%, a 10% increase in operations and maintenance (O&M) cost, and lower electricity generation under P99 estimates.

The rating remains underpinned by the strength of Sinar Kamiri’s 21-year power purchase agreement (PPA) with Tenaga Nasional Berhad (TNB), under which the national power company will purchase energy generated by its plant at a fixed tariff. This mitigates the company’s exposure to demand risk. The rating is moderated by the risk of significant variability in solar irradiance as well as performance risks associated with the plant operations.

The stable outlook incorporates our view that Sinar Kamiri will continue to generate sufficient energy output without significant operational issues. 

The rating could be upgraded if the plant’s performance improves with higher debt service coverage ratio (DSCR) and Sinar Kamiri is able to build up a strong liquidity buffer and reduce borrowings.

Downward pressure on the rating could occur if the plant experiences operational issues that would significantly impact energy generation and debt service coverage metrics.