MARC Ratings has removed UiTM Solar Power Sdn Bhd’s rating from MARCWatch Negative placement and concurrently lowered the rating to A+_IS from the AA-_IS prior to the MARCWatch placement. The rating outlook is negative. The current outstanding is RM192.3 million Green Sustainable and Responsible Investment (SRI) Sukuk. 

The rating removal from MARCWatch placement follows moderating concerns on UiTM Solar’s ability to meet upcoming financial obligations. MARC Ratings has been informed that a RM11.0 million bank guarantee is in place to meet the finance service reserve account (FSRA) requirement of a minimum required balance of RM16.0 million to be deposited into the account for sukuk obligations in April 2023. The availability of the bank guarantee, coupled with existing funds of RM5.3 million in the FSRA as at end-October 2022, has allowed UiTM Solar to meet its FSRA requirements.

The rating downgrade reflects the company’s weakened liquidity and cash flow coverage metrics from the prolonged shutdown of its 50MWac plant in Gambang, Pahang. The plant had experienced extensive damage to its gas-insulated switchgear and power transformer in November 2021, which had rendered it non-operational until June 2022. It resumed operations at 50% capacity in June and at 100% capacity in mid-August. 

Insurance proceeds for the equipment damage and business interruption of RM20.0 million that were supposed to provide a buffer to liquidity have not fully materialised as at date. In the circumstance, we estimate the company’s forward-looking finance service coverage ratio (FSCR) with cash to be significantly tighter at 1.4x in 2023. Upcoming obligations include sukuk repayment of RM16.0 million in April 2023, as well as estimated non-delivery payments of RM9.5 million in 2023 for not meeting 2022’s minimum electricity dispatch requirement under its 21-year power purchase agreement (PPA) with TNB.

The negative outlook considers UiTM Solar’s thin liquidity buffer and its reliance on consistently healthy operating cash flows from its plant to meet working capital and financial obligations. We wish to highlight that thus far, the plant has managed to record operational performance largely in line with projections since resuming operations at full capacity in mid-August 2022, averaging an availability of 99.1% up to end-October 2022. However, a longer period of sustained performance is required to rebuild its reserves.

The rating outlook would be revised to stable if the plant continues to demonstrate operational performance in line with P90 projections and strengthens its liquidity buffer. 

The rating could be downgraded if operational hitches cause plant performance to fall substantially below expectations and affect UiTM Solar’s debt servicing ability.