[RAM] RAM Ratings assigns final issue ratings to Cenergi SEA's Sukuk Programme

RAM Ratings has assigned final ratings of A1/Stable and A3/Stable to Cenergi SEA Berhad (Cenergi or the Group) Senior Sukuk and Subordinated Perpetual Sukuk, respectively. These facilities are subject to a combined limit of RM1.5 bil under the Group’s Senior Sukuk/Subordinated Perpetual Sukuk Programme (the Sukuk Programme). The Subordinated Perpetual Sukuk is rated two notches below the Senior Sukuk to reflect its increased loss severity and the risk of non-performance relative to Cenergi’s senior financing obligations. Concurrently, we have reaffirmed Cenergi’s corporate credit ratings of A1/Stable/P1.

RAM’s rating analysis considered the issuance of only RM270 mil of Senior Sukuk under the Sukuk Programme over the next three years to support Cenergi’s refinancing and expansion plans. The Group has no intentions to issue the Subordinated Perpetual Sukuk in the near-term. 

Cenergi is a domestic-focused integrated renewable energy (RE) player, specialising in palm oil mill effluent (POME) biogas power plants. Based on RAM’s rating methodology for government-linked entities, Cenergi is deemed to benefit from a moderate likelihood of extraordinary support from Khazanah Nasional Berhad (Khazanah) in the event of financial distress. This is underlined by the Group’s important role as Khazanah’s only sustainable energy arm as well as its strong relationship with the latter. Khazanah has provided explicit financial backing (totalling RM163.2 mil as at end-October 2021) and is actively involved in Cenergi’s key investment decisions through board representation. 

The ratings are underpinned by Cenergi’s position as the biggest grid-connected POME biogas provider under Malaysia’s Feed-in-Tariff scheme. Including a 3 MW biogas plant in Indonesia, the Group owns a total of 16 projects (26.6 MW of installed capacity) as at mid-October 2021. Cenergi has strong execution capabilities as it is supported by a management team with extensive industry expertise. The Group’s biogas plants are backed by long-term renewable energy power purchase agreements (REPPAs) with Tenaga Nasional Berhad for the sale of electricity. The REPPA terms are favourable, with no cash penalties for completion delay nor underperformance. Priority of despatch from the off-taker also moderates the absence of fixed availability-based revenue under the REPPA. As the sector is still nascent, Cenergi enjoys attractive average tariffs for its biogas projects. 

The Group is also involved in solar energy (rooftop solar and small-scale solar farms), energy efficiency and biomass pellet businesses. We believe Cenergi – as one of the pioneer biogas players – will be a key beneficiary of the Twelfth Malaysia Plan which gears towards a carbon neutral economy. Specifically, the plan indicates increased deployment of biogas energy and introduces new policies and frameworks to intensify RE adoption and energy efficiency investments.

Notwithstanding the above strengths and the industry’s promising prospects, the ratings are moderated by Cenergi’s relatively small size. The biogas plants’ inherent feedstock supply volatility could also affect performance and revenue streams. The Group’s aggressive expansion could jeopardise the projected financial metrics. 

The Group’s revenue in FY Dec 2020 stood at RM67 mil, while its operating profit before depreciation, interest and tax (OPBDIT) and net profit only turned positive at a respective RM8.9 mil and RM2.6 mil, after staying in the red since FY Dec 2013. Although we expect the Group to maintain a positive OPBDIT going forward, its bottom line could sustain losses until FY Dec 2022 under our stressed case, owing to hefty depreciation and amortisation costs. 

Cenergi is actively expanding its RE business, with plans to add another 13 biogas projects (totalling 25.5MW, including an existing project expansion to 4.0 MW) over the next two years. It is also in negotiations to acquire two green-field solar farms (totalling 17.5 MW). We view this pace to be ambitious and have stressed its cashflows to reflect a lower success rate in project bidding and factored in construction delays of four to six months. We also assumed lower energy production levels for the Group’s biogas portfolio to reflect its mixed historical performance. 

Overall, RAM expects Cenergi’s financial position to strengthen alongside the commissioning of new projects, with average projected funds from operation debt coverage improving to 0.14 times between fiscal 2022 and 2024. Average gearing will however deteriorate to 1.33 times in line with the corresponding higher debts taken to fund its expansion. We also expect Cenergi to continue relying on capital injections from Khazanah (around 30% of project cost).

The Sukuk Programme is aligned with the requirements of Securities Commission Malaysia’s Sustainable and Responsible Investment Sukuk Framework, the ASEAN Green Bond Standards, and the globally recognised Green Bond Principles. Cenergi’s Green Sukuk Framework has been reviewed by RAM Sustainability Sdn Bhd. 


Analytical contacts
Chu Jia Ying
(603) 3385 2519
jiaying@ram.com.my

Chong Van Nee, CFA
(603) 3385 2582
vannee@ram.com.my
        


The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.