[RAM] RAM Ratings maintains Cypark Ref's sukuk rating at AA3/Negative

RAM Ratings has affirmed the AA3/Negative rating of Cypark Ref Sdn Bhd’s RM550 mil SRI Sukuk Murabahah Programme (2019/2041) (the Sukuk). Cypark Ref is dependent on cashflows from three 30 MWac solar photovoltaic projects to service the sukuk post-completion.

Since the last rating review in April 2023, we have observed positive progress with previous issues at the plant interconnection facilities since resolved and all physical construction works now complete. That said, the negative outlook continues to reflect persistent challenges in the completion of two floating solar farms in Kelantan (the DTU plants), with the delivery of the two plants falling short of the completion deadline yet again. For now, commencement of commercial operations remains dependent on some electrical works and testing and commissioning (T&C). 

In our analysis, we have assumed a revised forecast for the commercialisation of the DTU plants as end-May 2024 (management: end-April 2024), factoring in potential unforeseen challenges in coordinating with external parties for the T&C process. Meanwhile, the third plant – a ground-mounted solar farm in Sik, Kedah (operational since January 2022) – displayed stronger results in 2023 owing to higher solar irradiance and lower plant downtime. 

While the prolonged completion of the DTU plants caused a significant cashflow mismatch for the transaction, Cypark Ref’s liquidity position remained intact, thanks to financial support from its parent companies – Cypark Renewable Energy Sdn Bhd (CRE, the engineering, procurement, construction and commissioning (EPCC) contractor) and Cypark Resources Berhad (CRB, the transaction sponsor). This has so far included (i) two irrevocable and unconditional bank guarantees (BGs) totalling RM46 mil secured and extended to Cypark Ref by CRB, (ii) the continued deferral of RM18.5 mil of EPCC claims, and (iii) CRE’s RM3.05 mil fresh capital infusion in December 2023. Further hold-ups at the DTU plants beyond our sensitivity will necessitate additional financial backing.

Since emerging as CRB’s substantial shareholder in January 2023, Jakel Capital Sdn Bhd has injected over RM332 mil to address the Cypark group’s liquidity and accelerate the completion of the DTU plants. Jakel Capital has represented the strategic importance of CRB as its renewable arm to spearhead its foray into this industry. The former’s significant financial commitment to date is an indication of its intent. 

Notwithstanding CRB’s intention to inject cash into Cypark Ref for upcoming sukuk repayments, our sensitised cashflow projection assumes partial crystallisation of the BGs. Accordingly, the transaction’s consolidated finance service coverage ratios (with cash balances, post-distribution) may register a one-time dip, falling to 1.43 times in June 2024. A covenant breach may also occur in that cash and BG amounts will be insufficient to meet required finance service reserve account and cash deposit account balances in December 2024. These potential slippages are however envisaged to be one-off and to occur only under our sensitised scenario. With commercial operations in sight and strong financial backing from its sponsors, Cypark Ref’s overall credit metrics remain in line with an AA3 rating. We expect to resolve the outlook contingent on satisfactory plant performance in line with our expectations. 

Meanwhile, CRE’s recent deferment of profit payment under its RM500 mil Perpetual Sukuk Musharakah Programme has no impact on Cypark Ref’s issue rating. The Sukuk is structured as a non-recourse project finance transaction (see Figure 1).

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

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

Media contact
Sakinah Arifin
(603) 3385 2500
sakinah@ram.com.my