KUALA LUMPUR (Dec 19): RAM Ratings has reaffirmed its AA3/Stable rating on Edra Energy Sdn Bhd's sukuk wakalah of up to RM5.09 billion in nominal value (2018/2030), based on the company's strong liquidity, which will enable it to weather further delays in the completion of its gas turbine power plant in Alor Gajah, Melaka.
In a statement, the rating agency said its view is premised on a letter of undertaking from Edra Power Holdings Sdn Bhd (rated AA1/Stable by RAM), which is Edra Energy's sole shareholder, to irrevocably and unconditionally provide liquidity support to the company as and when required, to preserve its finance service coverage ratio (FSCR) at a minimum of 1.5 times.
It said the engineering, procurement, construction and commissioning contractors for the 2,242MW power plant has revised the completion timeline several times due to capacity restrictions imposed during the height of the pandemic as well as three key teething issues discovered during commissioning.
These issues have since been resolved, with Edra Energy indicating that the plant is on track to meet the latest targeted commercial operation dates of Jan 15, 2022 and March 1, 2022 for two generating blocks.
"Under our sensitised scenario, however, we have assumed further completion delays — an additional one to two months for the remaining two GBs — to cater for unforeseen circumstances.
"As the project involves fixed financial obligations, the additional delay will cause a cash flow mismatch, creating a larger cumulative liquidity gap of approximately RM480 mil under this scenario," RAM said.
It expects Edra Power to bridge the gap, to maintain a minimum annual FSCR of 1.5 times throughout the tenure of the sukuk.
"No additional liquidity injection is required under management's base case expectations," it added.
Edra Power and its group of subsidiaries had RM1.13 billion of unencumbered cash as at end-July 2021, RAM said, and any repatriation of the funds will require advance planning.
Coupled with the RM250 million of undrawn credit facilities, the expected shortfall will be sufficiently covered. Based on its sensitised case, RAM said the first shortfall is anticipated in July 2022.
"Looking ahead, we do not discount the possibility of further operational hiccups from the use of new technology for a plant of this scale. We have accounted for this by assuming a longer forced outage duration and consequently lower cash flow generation under our sensitised cash flow projection.
"Edra Energy would be able to rely on its long-term service agreement with GE Global Parts & Products GmbH (the equipment supplier) which provides guarantees on output, heat rates, planned and unplanned outages. The latter also commits to making available critical and strategic spares in a timely manner until the end of the 36-month warranty period," said RAM.