MARC Ratings has affirmed its AA-_IS rating on Leader Energy Sdn Bhd’s outstanding ASEAN Green Sustainable and Responsible Investment (SRI) Sukuk Wakalah of RM245.0 million with a stable outlook. 

Leader Energy is the investment holding company of two solar power project companies, Leader Solar Energy Sdn Bhd (LSE I) and Leader Solar Energy II Sdn Bhd (LSE II), which operate two solar facilities in Kuala Muda, Kedah, with a combined capacity of 49MW.   

The rating affirmation incorporates the plants’ track record of energy generation that has been in line with forecast. Energy production at both LSE I and LSE II exceeded the P90 estimates by 8.4% and 2.9% in 2022 and continued to be above the P90 levels in 1Q2023. The difference between the two plants’ output was partly due to a damaged inverter at LSE II in September 2022 leading to unplanned outages. However, this has been rectified in a timely manner. 

Consolidated revenue correspondingly came in at RM37.4 million in fiscal 2022, RM1.4 million higher than projected, while cash flow from operations (CFO) remained healthy at RM33.6 million. The rating case projections forecast an average finance service coverage ratio (FSCR) of 3.27x with a minimum of 2.93x over the tenure of the sukuk. These metrics are expected to remain robust under our stressed assumptions that include P99 energy generation, higher plant outage of 2.4% and a 10% increase in annual operating costs. The group has designated account balances of RM56.0 million as at end-March 2023, which is more than sufficient to meet its sukuk obligations of RM20.5 million on July 17, 2023. 

The rating continues to reflect the strength of the 21-year PPA between LSE I and LSE II with the offtaker Tenaga Nasional Berhad (TNB, AAA/Stable). Under the agreement, the energy generated by the solar power plants will be purchased by TNB at certain tariffs, thereby mitigating demand risk. 

Notwithstanding the track record of good operational performance to date, the plants’ exposure to solar resource variability as well as unforeseen outages that could affect performance remain key risks. 

The stable outlook reflects our expectation that the power plants will maintain their operational metrics in line with projections and generate stable income streams to meet the financial obligations under the rated programme.  

MARC Ratings could improve the outlook and/or rating if the plants continue their strong operating performance and if Leader Energy maintains a healthy liquidity buffer to provide solid cash flow coverages along with a substantial reduction of its borrowings level to around half of the initial sukuk issuance or CFO debt coverage of around 0.25x.

Downward pressure on the rating could occur if the plants experience operational issues with significant adverse impact on energy generation and debt service coverage metrics.