MARC Ratings has affirmed its AA-_IS rating on UiTM Solar Power Dua Sdn Bhd’s (UiTM Solar Dua) outstanding RM92.0 million Green Sustainable and Responsible Investment (SRI) Sukuk with a stable outlook. UiTM Solar Dua owns and operates a 25MW solar power plant in Pasir Gudang, Johor.

The affirmed rating reflects the strength of the 21-year PPA between UiTM Solar Dua and Tenaga Nasional Berhad (TNB), under which demand risk is allocated to offtaker TNB (AAA/Stable). The rating is moderated by potential fluctuations in energy generation due to unpredictability of solar irradiance and the plant’s operational performance.  

The total energy production of 16,816MWh in 1H2023 came 15.9% below the P90 energy production forecast mainly due to lower irradiation. A longer-than-usual northeast monsoon early this year had affected solar resource and energy production, leading to revenue dropping 16.0% below forecast. Notwithstanding this, MARC Ratings notes that UiTM Solar Dua has sufficient liquidity to weather underperformance from climate-related challenges in the medium term.  

As of September 19, 2023, the company had cash of RM10.6 million, sufficient to cover its sukuk obligation of RM7.0 million due on March 4, 2024. Under the base case projections, the minimum and average pre-distribution finance service coverage ratios are 2.57x and 3.08x. Cash build-up in the earlier years is necessary to support operating cash flow given the backloaded sukuk principal obligations. The rating agency has assessed cash flow generation as adequate to buffer a moderate 10% increase in operating expenses, plant unavailability of 2.4%, or lower P95 energy production.

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.

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