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 RM230.0 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 power plants in Kuala Muda, Kedah, with a combined capacity of 49MW.   

Rationale        

The rating affirmation reflects the plants’ stable operational track record and limited revenue risks, given the two 21-year PPAs between LSE I and LSE II with Tenaga Nasional Berhad (TNB, rated AAA/Stable by MARC Ratings) for the offtake of solar power of up to 61,038.99 megawatt-hours (MWh) and 43,306.00MWh from the power plants under LSE I and LSE II at a fixed tariff of RM0.4100/kilowatt hour (kWh) and RM0.3799/kWh. Electricity output at LSE I and LSE II both exceeded the P90 estimates by 13.7% and 4.7% in 2023. The total energy generation at both plants continued to surpass the P90 level forecast for 1Q2024. 

Overall financial profile has remained steady. Over 2023, total revenue of the two project companies combined were up slightly by 2.9% to RM38.5 million (2022: RM37.4 million), while cash flow from operations (CFO) showed a modest growth to RM34.3 million (2022: RM33.6 million). The steady financial profile reflects the plants’ stable operational performance, with high plant availability of over 98% on average over the past four years and a stable cost structure. While operations to date have been sound, the plants, as with other solar plants, are exposed to fluctuations in solar irradiance and performance risks such as unforeseen outages. Thus, rigorous operations and maintenance remain key to ensuring long-term sustainable performance of the plants.

MARC Ratings’ rating case projects a minimum finance service coverage ratio (FSCR) of 3.11x in 2037, with an average of 3.52x for the period between 2024 and 2038. These metrics are expected to remain robust under the rating agency’s stressed assumptions that include P99 energy generation, a higher plant outage of 2.4% and a 10% increase in annual operating costs.

The stable outlook reflects MARC Ratings’ expectation that the solar power plants will continue to deliver satisfactory performance in line with projections and generate stable income to meet Leader Energy’s debt service obligations.  

An upgrade of the rating and/or outlook would depend on sustained strong plant performance and Leader Energy showing higher levels of liquidity and cash generation leading to more robust credit metrics. 

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.