[RAM] RAM Ratings reaffirms Edra Energy's AA3/Stable sukuk rating

RAM Ratings has reaffirmed the AA3/Stable rating of Edra Energy Sdn Bhd’s (Edra Energy or the Company) Sukuk Wakalah of up to RM5.085 bil in nominal value (2018/2038). The reaffirmation is anchored on our view that Edra Energy has sufficient liquidity to weather the six-month construction delay faced by its 2,242 MW combined-cycle, gas turbine (CCGT) power plant in Alor Gajah, Melaka (the Plant or the Project). We have also taken into account a higher-than-expected tax payment due to the reinstatement of the sales and service tax in September 2018.

As at 27 September 2020, overall project completion as reported by the engineering, procurement, construction and commissioning (EPCC) consortium stood at 96.98% – behind the targeted 99.42%. With no variation order to date, the Project’s pre-funded contingency sum (4.2% of EPCC cost) and the liquidity buffer derived from prudent cost management will help cushion any adverse cashflow impact. Moreover, Edra Power Holdings Sdn Bhd (Edra Power, rated AA1/Stable by RAM) – Edra Energy’s immediate and sole holding company – has executed a Letter of undertaking (LoU) to irrevocably and unconditionally ensure that the Company receives liquidity support to maintain the sukuk rating.

On the ground of a force majeure arising from the nationwide movement control orders, the EPCC consortium has submitted a claim to Tenaga Nasional Berhad (TNB) to extend the agreed Scheduled Commercial Operation Date (SCOD) of the Plant under the EPCC contract by up to 5.9 months. While, TNB has provided an interim extension of time, the period granted is shorter than that sought. We understand that TNB’s final decision on the extended SCOD under the Power Purchase Agreement (PPA) can only be made upon the completion of each generating block (GB). We highlight that any LD payable to TNB under the PPA for delays in plant completion will be contractually borne by the EPCC consortium, if the Company can demonstrate the delay is caused by the latter, as specified under the EPCC contract.

Backed by favourable project fundamentals, Edra Energy is anticipated to generate strong cashflow after the completion of the Plant. This, coupled with Edra Power’s commitment to support the Company via the LoU, will lead to a minimum annual finance service coverage ratio of 1.50 times (with cash balances, post-distribution, calculated on payment dates) throughout the tenure of the Sukuk. 

Edra Energy is ultimately owned by China General Nuclear Power Corporation Ltd (63%) and China Southern Power Grid Company Ltd (37%). The EPCC contractors for the Project are Hyundai Engineering Co Ltd, Hyundai Engineering & Construction Co Ltd and Hyundai Engineering Malaysia Sdn Bhd. The Plant will consist of three single-shaft CCGT GBs, with a nominal capacity of 747 MW each. The respective targeted SCODs of GBs 1, 2 and 3 have been revised to 7 June 2021, 22 August 2021 and 18 October 2021 (originally 1 January, 1 March and 1 May 2021).  


Analytical contact
William Tan
(603) 3385 2530
williamtan@ram.com.my

Media contact
Padthma Subbiah
(603) 3385 2577
padthma@ram.com.my