MARC has assigned a preliminary rating of AA-_IS to UiTM Solar Power Dua Sdn Bhd’s (UiTM Solar 2) proposed Green SRI Sukuk of up to RM100.0 million. The rating outlook is stable. 

UiTM Solar 2 was set up to develop and operate a 25MW solar power plant in Pasir Gudang, Johor. Its parent, UiTM Energy & Facilities Sdn Bhd (UiTM Energy), operates a 50MW solar power plant in Gambang, Pahang through another subsidiary which has been rated at AA-/Stable by MARC. UiTM Energy is ultimately owned by University Teknologi MARA (UiTM).

The assigned rating to UiTM Solar 2’s proposed sukuk mainly reflects the strength of the 21-year power purchase agreement (PPA) between UiTM Solar 2 and Tenaga Nasional Berhad (TNB, AAA/Stable) which mitigates offtaker risk. The rating also factors in the adequacy of the projected cash flows to meet the sukuk obligations throughout the sukuk tenure. As with other solar power plants, the moderating factors continue to be the variability of solar irradiance and the plant’s operational performance. 

MARC has been informed that the plant has been completed and connected to the grid, after encountering delays outside the project’s control in relation to the permitting process and as a result of government-imposed movement control measures to mitigate the COVID-19 pandemic. The latter led to a stoppage of construction work and supply chain disruptions that affected the delivery and installation of critical project components, as well as availability of ancillary services. The official commercial operation date (COD) is pending certification by the Energy Commission.  

Total project cost, estimated at RM125.0 million, is funded based on a finance-to-equity ratio of 80:20. The engineering, procurement, construction and commissioning (EPCC) contractor for the project, SPIC Energy Malaysia Berhad (SPIC Energy), is undertaking the construction costs which will be paid from the proceeds of the proposed sukuk. The fixed-price EPCC contract alleviates cost overrun risks. MARC draws comfort from the demonstrated track record of SPIC Energy in completing a similar project. SPIC Energy is an indirect subsidiary of China state-owned company, State Power Investment Corporation Limited, a group that has substantial experience in solar power projects. During the operational phase, UiTM Energy will undertake the operations and maintenance (O&M) of UiTM Solar 2’s solar power plant. 

Under the base case cash flow projections that assume P90 energy production levels, the minimum and average finance service cover ratios (FSCR) with cash stood at 1.98x and 3.00x throughout the sukuk tenure. Sensitivity analysis indicate that the projected cash flows can withstand moderate stress scenarios of lower energy production, higher O&M cost, plant unavailability and panel degradation. UiTM Solar 2 is required to maintain a minimum required balance in its finance service reserve account (FSRA) of the next six-months’ profit payments and principal repayments as well as a minimum post-distribution FSCR of 1.5x; this requirement mitigates the risk of debt service shortfalls. 

The stable outlook assumes that during the operational phase, UiTM Solar 2’s solar power project will operate within expectations and meet its projected cash flow metrics. 

Lim Wooi Loon, +603-2717 2942/ wooiloon@marc.com.my;

Sharidan Salleh, +603-2717 2954/ sharidan@marc.com.my.