RAM Ratings has placed the respective AA3 and A2 ratings of Telekosang Hydro One Sdn Bhd's (TH1 or the Issuer) RM470 mil ASEAN Green SRI Sukuk under the shariah principle of Wakalah Bi Al-Istithmar (2019/2037) (the Senior Sukuk) and RM120 mil ASEAN Green Junior Bonds (2019/2039) (the Junior Bonds) on Rating Watch with a negative outlook. 

The rating action is premised on our concerns that the Issuer may face severe credit stress in the near term should plans to procure additional liquidity support fail to materialise. A liquidity injection is currently crucial to make up for the absence of cashflow generation amid further delays in the construction of the small hydro power plants of TH1 (Plant 1  24 MW) and Telekosang Hydro Two Sdn Bhd (TH2) (Plant 2  16 MW) (collectively, the Group). Both plants (the Plants or the Projects) are located in Tenom, Sabah. Combined cashflow generation from TH1 and TH2 supports the repayment of the Senior Sukuk and Junior Bonds, which were previously issued to finance the development of the Plants. 

While the Plants had not met our earlier expectation of achieving commercial operations by end-March 2022, construction progress only stood at a respective 97.73% (Plant 1) and 95.72% (Plant 2) as of April 2022. Continuous delays in completion have been caused mainly by manpower shortages, pandemic-related challenges, and inclement weather. With critical labour-intensive waterway works remaining to be done, the Group expects to complete Plant 1 by September 2022 and Plant 2 by November 2022. The Independent Technical Adviser (ITA) concurs with these targets. 

We have assumed, however, that the Plants will reach commercial operations by end-December 2022, in line with the extension of time provided by Sustainable Energy Development Authority Malaysia. Notably, delay in the completion of the Plants is not a termination event under the Group's 21-year Renewable Energy Power Purchase Agreements with Sabah Electricity Sdn Bhd, the offt