KUALA LUMPUR: RAM Rating Services Bhd has lifted the negative Rating Watch on Eden Inc Bhd unit Musteq Hydro Sdn Bhd's RM108 million Al-Bai' Bithaman Ajil fixed-rate serial bonds (2002/2017).
The rating agency said on Thursday, March 24 concurrently, the Islamic bonds' rating has been downgraded from A2 to A3, with a negative outlook. It cautioned that Musteq could face a liquidity crunch in its debt servicing in 2016-2017.
Musteq Hydro is an independent power producer (IPP) which built, owns and operates a 20-MW hydro power plant at Sungai Kenerong, Kelantan. It is a unit of Eden Inc Bhd.
Under a power purchase agreement with TENAGA NASIONAL BHD [], Musteq Hydro is obliged to generate and sell electricity exclusively to TNB for 30 years until Dec 19, 2030.
'The downgrade of the Isalmic bonds' rating is premised on the company's weakened debt-servicing ability, due to the combined effects of cumulative interest payments on shareholder's advances in the past and upward revision of operations and maintenance fees as well as management fees.
'These actions, although approved by bondholders, had resulted in an additional RM10.58 million of cash outflow as at end-December 2010 against our initial expectations. Notably, management's efforts to effectively address the situation has not been finalised since 2009,' it said.
RAM Ratings said while the management has represented that there would be no further payment of interest on shareholder's advances and reduced the company's management fees payable to Eden Inc, from RM300,000 to RM50,000 per annum from 2010 onwards, these actions are insufficient to address the situation.
The A3 rating reflects Musteq Hydro's adequate debt-servicing ability up to FY Dec 2015. The debt service coverage ratios (calculated on the principal repayment date) for this period range from 1.35 to 1.46 times.
RAM Ratings said however, the company's debt-servicing aptitude is of concern in fiscal 2016 and 2017, when the lumpy principal repayments begin.
'Based on our sensitised projections, Musteq Hydro is likely to face a liquidity crunch then. Meanwhile, we acknowledge that Musteq Hydro's management is at the early stages of refinancing the Islamic bonds.
'As it stands, the company's weak debt-servicing ability in FY Dec 2016 and 2017 still persists. Given this, the rating has been placed on negative outlook, highlighting further downward pressure if the refinancing exercise is not completed in the medium-term or operational problems significantly hamper Musteq Hydro's cash-generating aptitude,' it said.
RAM Rating also noted the likelihood that Musteq Hydro will not be able to fully fund the debt service reserve account (DSRA) in late July every year throughout the bonds' tenure, in which case the bondholders could call for an event of default.
'As such, the company may continue to seek advances from Eden to top up the DSRA in the event of any shortfall,' it said.
The rating agency said on Thursday, March 24 concurrently, the Islamic bonds' rating has been downgraded from A2 to A3, with a negative outlook. It cautioned that Musteq could face a liquidity crunch in its debt servicing in 2016-2017.
Musteq Hydro is an independent power producer (IPP) which built, owns and operates a 20-MW hydro power plant at Sungai Kenerong, Kelantan. It is a unit of Eden Inc Bhd.
Under a power purchase agreement with TENAGA NASIONAL BHD [], Musteq Hydro is obliged to generate and sell electricity exclusively to TNB for 30 years until Dec 19, 2030.
'The downgrade of the Isalmic bonds' rating is premised on the company's weakened debt-servicing ability, due to the combined effects of cumulative interest payments on shareholder's advances in the past and upward revision of operations and maintenance fees as well as management fees.
'These actions, although approved by bondholders, had resulted in an additional RM10.58 million of cash outflow as at end-December 2010 against our initial expectations. Notably, management's efforts to effectively address the situation has not been finalised since 2009,' it said.
RAM Ratings said while the management has represented that there would be no further payment of interest on shareholder's advances and reduced the company's management fees payable to Eden Inc, from RM300,000 to RM50,000 per annum from 2010 onwards, these actions are insufficient to address the situation.
The A3 rating reflects Musteq Hydro's adequate debt-servicing ability up to FY Dec 2015. The debt service coverage ratios (calculated on the principal repayment date) for this period range from 1.35 to 1.46 times.
RAM Ratings said however, the company's debt-servicing aptitude is of concern in fiscal 2016 and 2017, when the lumpy principal repayments begin.
'Based on our sensitised projections, Musteq Hydro is likely to face a liquidity crunch then. Meanwhile, we acknowledge that Musteq Hydro's management is at the early stages of refinancing the Islamic bonds.
'As it stands, the company's weak debt-servicing ability in FY Dec 2016 and 2017 still persists. Given this, the rating has been placed on negative outlook, highlighting further downward pressure if the refinancing exercise is not completed in the medium-term or operational problems significantly hamper Musteq Hydro's cash-generating aptitude,' it said.
RAM Rating also noted the likelihood that Musteq Hydro will not be able to fully fund the debt service reserve account (DSRA) in late July every year throughout the bonds' tenure, in which case the bondholders could call for an event of default.
'As such, the company may continue to seek advances from Eden to top up the DSRA in the event of any shortfall,' it said.
No comments:
Post a Comment