[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 (the Company) Sukuk Wakalah of up to RM5.085 bil in nominal value (2018/2038).

The reaffirmation is underscored by the stable projected cashflow from Edra Energy upon the recent completion of its 2,242 MW combined-cycle gas turbine power plant in Alor Gajah, Melaka (the Plant) which has just commenced its full commercial operations. The rating also assumes financial support from Edra Energy’s sole holding company, Edra Power Holdings Sdn Bhd (Edra Power, rated AA1/Stable by RAM) as required under the latter’s Letter of Undertaking issued to the sukuk trustee. Under RAM’s estimates, Edra Power is expected to extend financial assistance over the tenure of the Sukuk in order to maintain Edra Energy’s annual finance service coverage ratio (FSCR) (with cash balances, post-distribution, calculated on payment dates) at a minimum of 1.50 times to maintain the AA3 rating.

The Plant reached full commercial operations on 28 February 2022 within budget, although behind its original deadline of 1 May 2021 (scheduled commercial operation date (SCOD). Tenaga Nasional Berhad (TNB) – the offtaker – is currently reviewing Edra Energy’s claim for an extended SCOD pursuant to the force majeure event clause under the power purchase agreement (PPA). Any liquidated damages (LDs) payable to TNB under the PPA for delays beyond the SCOD will be contractually borne by the engineering, procurement, construction and commissioning contractors for the Plant, to the extent to which the delay is caused by the latter. 

Todate, it has performed well in its first few months of operations, charting an average availability factor of 98.5% in 1H 2022. Its rolling unscheduled outage rate of 0.74% during this period was well below the PPA’s limit of 4%, translating into full available capacity payments. Edra Energy also managed to fully pass through fuel costs to TNB. However, the Plant is facing some fleet wide defects post-completion, which are being addressed based on the recommended action plan of the original equipment manufacturer, General Electric Company (GE), at no cost to Edra Energy. Given the infancy of the GE 9HA.02 gas turbine installed at the Plant, we do not discount the possibility of further hiccups.

We note that Edra Energy revised its operational cashflow assumption, taking into account more frequent inspections and a higher load factor which requires a tighter maintenance schedule. Consequently, its cumulative operation and maintenance cost over the Sukuk’s life is about 20% higher than our previous expectations. With this, RAM’s revised sensitised scenario (which includes a longer forced outage duration, zero fuel margin, no dividend payout and a higher foreign exchange rate), the Company may require periodic liquidity assistance from Edra Power of up to RM1.49 bil over the Sukuk’s tenure from our earlier estimated RM480 mil. 

We highlight that the liquidity top up is reflected only in our stress scenario. Edra Energy’s base case expects no liquidity injection. Instead, it anticipates a cumulative dividend distribution of RM3.09 bil to Edra Power. 

If RAM’s stressed scenario does materialise, we expect timely support from Edra Power to be forthcoming. With RM282 mil of undrawn credit facilities and RM1.56 bil of unencumbered cash balances residing at intermediate holding companies and operating subsidiaries as at end-June 2022, we view Edra Power’s liquidity position to be robust. Its balance sheet remains healthy with company-level and consolidated gearing ratios of 0.02 times and 0.68 times, respectively. 

In the immediate term, Edra Energy’s cash balances of RM396 mil as at end-August 2022 and an expected pre-financing cashflow of RM427 mil up to 2023 should allow the Company to comfortably meet a remaining expected project cost of RM287 mil and RM478mil of financial obligations in the next 12 months. Edra Energy’s Finance Service Reserve Account is fully backed by a standby letter of credit (procured by Edra Power) for RM220 mil, which mirrors sukuk profit and principal obligations due in January 2023. 


Analytical contacts
Chong Van Nee, CFA
(603) 3385 2482
vannee@ram.com.my

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