KUALA LUMPUR: RAM Rating Services Bhd has placed the A2 rating of Musteq Hydro Sdn Bhd's RM108 million Al-Bai Bithaman Ajil fixed-rate serial bonds on Rating Watch, with a negative outlook.
The ratings agency said on Friday, June 25 that Musteq Hydro is an independent power producer (IPP) that has been licensed to build, own and operate a 20-MW hydro power plant at Sungai Kenerong, Kelantan.
"The Rating Watch has been triggered by the company's continued interest payment on shareholder's advances, which amounted to RM1.43 million in 2009, despite the fact that Musteq Hydro's longer-term debt-servicing ability is already at risk.
"This is also contrary to the management's earlier representation to RAM Ratings that there would be no further interest payments on shareholder's advances; such outflows, along with the revision of the plant's operations and maintenance fees, had caused the rating to be put on a negative outlook on July 30, 2009," it said.
RAM Ratings said as a result of having run down its cash reserves, Musteq Hydro is now highly unlikely to be able to meet the debt service reserve account's (DSRA) balance requirement under the Trust Deed by July 30, 2010; this is for its principal and profit payment falling due on 28 January 2011.
Under the terms of the Trust Deed, Musteq Hydro must always maintain an amount equivalent to its total debt obligations due in the next 6 months. The breaching of this covenant is likely to occur in late July each year throughout the Bonds' tenure.
Meanwhile, RAM Ratings is currently conducting the annual review of Musteq Hydro's debt rating. It will make an appropriate announcement once the exercise has been completed.
The ratings agency said on Friday, June 25 that Musteq Hydro is an independent power producer (IPP) that has been licensed to build, own and operate a 20-MW hydro power plant at Sungai Kenerong, Kelantan.
"The Rating Watch has been triggered by the company's continued interest payment on shareholder's advances, which amounted to RM1.43 million in 2009, despite the fact that Musteq Hydro's longer-term debt-servicing ability is already at risk.
"This is also contrary to the management's earlier representation to RAM Ratings that there would be no further interest payments on shareholder's advances; such outflows, along with the revision of the plant's operations and maintenance fees, had caused the rating to be put on a negative outlook on July 30, 2009," it said.
RAM Ratings said as a result of having run down its cash reserves, Musteq Hydro is now highly unlikely to be able to meet the debt service reserve account's (DSRA) balance requirement under the Trust Deed by July 30, 2010; this is for its principal and profit payment falling due on 28 January 2011.
Under the terms of the Trust Deed, Musteq Hydro must always maintain an amount equivalent to its total debt obligations due in the next 6 months. The breaching of this covenant is likely to occur in late July each year throughout the Bonds' tenure.
Meanwhile, RAM Ratings is currently conducting the annual review of Musteq Hydro's debt rating. It will make an appropriate announcement once the exercise has been completed.
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