RAM assigns AA3/stable rating to Edra’s proposed sukuk
PETALING JAYA: RAM Rating Services Bhd has assigned a preliminary AA3/stable rating to Edra Energy Sdn Bhd’s (EESB) proposed sukuk to raise up to RM5.28bil.
RAM Ratings said the preliminary rating reflects EESB’s strong project economics, underscored by stable cashflow generation, which results in a minimum finance service coverage ratio of 1.5 times under RAM Ratings’ sensitised case on completion of the plant.
“Given the technology used in the turbine is untested and no other plant of this scale is currently in commercial operation globally, the company is exposed to technology risk,” said Chong Van Nee, RAM Ratings co-head of infrastructure and utilities ratings, in a statement yesterday.
“As the plant is under construction stage and equity will be progressively injected into the project throughout the construction peri- od, this also exposes the project to construction-related risk and uncertainty of funding,” Chong added.
Under proposed sukuk, the bulk of the proceeds or RM5.21bil would be used mainly to fund the construction of a 2,242MW combined-cycle gas turbine power plant in Alor Gajah, Melaka.
EESB is a wholly-owned subsidiary of independent power producer Edra Power Holdings Sdn Bhd, and is bonded with a 21-year power purchase agreement (PPA) with Tenaga Nasional Bhd (TNB).
Meanwhile on Edra Power, RAM said although the company is a significant power player with a sturdy business and financial profile, there are “allays concerns” on funding uncertainty relating to progressive equity injections.
RAM Ratings said its cashflow analysis assumes that Edra Energy’s finance service reserve account (FSRA) will be fully funded by a standby letter of credit (SBLC), in line with the company’s plan to fund the account upon reaching the commercial operation date.
“We expect the company to be able to consistently procure the required SBLC to fund its FSRA, failing which, the SBLC will crystallise into cash and be placed in the account,” RAM Ratings said.
“However, the subsequent withdrawal of the amount or failure to top up the account to achieve the minimum required balance within 120 days, would be tantamount to an event of default,” it added.
It was reported that Edra Power has been seeking an initial public offering (IPO) this year. In February, it withdrew its request for a proposal to hire banks for its IPO and then relaunched it in May, targeting to raise US$500mil to US$1bil.