Telekosang Hydro One (Telekosang)’s RM470 million (US$106.22 million) ASEAN Green SRI Sukuk facility has been put on rating watch with a negative outlook by RAM Ratings. The rating watch with a negative outlook indicates that the Sukuk may face a downgrade in its’AA3’ rating in the upcoming rating announcement from the rating agency.
The Sukuk facility was issued to fund hydropower projects by Telekosang Hydro One (Plant 1) and Telekosang Hydro Two (Plant 2) which each signed a 21-year renewable energy power purchase agreement with Sabah Electricity to develop one small hydropower plant. The two hydropower plants, once completed, will have a combined installed capacity of 40 MW.
The projects have faced continued completion delays caused primarily by a shortage of manpower, pandemic-related challenges and inclement weather. With critical labor-intensive waterway works yet to be completed, Telekosang expects to complete Plant 1 by September 2022 and Plant 2 by November 2022.
The rating agency cited liquidity concerns as the main factor contributing to the negative outlook. The issuer has made prolonged efforts in finding solutions to its financial constraints. In 2021, Jentayu Capital, the ultimate shareholder and transaction sponsor of Telekosang, obtained a RM25 million (US$5.65 million) bank guarantee from MIDF Amanah Investment Bank (MIDF Amanah) for Telekosang to offset gaps caused by project delays.
Telekosang and Jentayu Capital are currently in talks to make financial arrangements to procure RM40 million (US$9.04 million) in financing to address the issuer’s liquidity position. Telekosang is also negotiating a supplemental agreement with its engineering, procurement, construction and commissioning contractor, Sinohydro Corporation, to allow it to withhold a portion of the remaining contractual payments payable to Sinohydro. Additionally, Jentayu Capital has reached out to MIDF Amanah requesting it to extend the existing bank guarantee or provide a new one.
The rating watch is expected to be resolved in the coming two to three months upon which a rating will be issued. The outcome of the rating watch is dependent on the issuer and its sponsor’s financial negotiations with contractors and MIDF Amanah. Should the required financial support not be secured in time, the rating of the Sukuk could be downgraded by multiple notches.