RAM Ratings affirms Solar Management (Seremban)'s AA3/Stable rating

RAM Ratings has affirmed the AA3/Stable rating of Solar Management (Seremban) Sdn Bhd's (SMS or the Company) RM260 mil ASEAN Green SRI Sukuk (2020/2038) (the Sukuk). 

SMS's debt servicing ability is expected to remain robust, supported by sound operations at its 50 MWac solar photovoltaic plant in Rembau, Negeri Sembilan (the Plant) and strong cash reserves. The Plant's net energy output (NEO) stayed steady in FY Dec 2024 at 77,130 MWh (FY Dec 2022: 77,366 MWh), due to fewer unscheduled outages. This was equivalent to 93.5% of its declared annual quantity and about 5% above RAM's projection. In FY Dec 2024, the number of modules damaged by lightning dropped to just 9 units, compared to 94 units in FY Dec 2023, thanks to newly installed lightning arresters. Consequently, the Plant's overall downtime decreased to 51 hours from 283 hours in fiscal 2023. 

SMS's pre-tax profit for FY Dec 2024 declined marginally to RM6.27 mil (-0.95% year-on-year) impacted by higher operating expenses and depreciation charges, though moderated by increased investment income. The Company's cash generation was strong, with the finance service coverage ratio (FSCR), including cash balances, at 3.23 times on the latest repayment date in October 2024. RAM's sensitivity analysis indicates minimum and average annual FSCRs of at least 1.50 times throughout the Sukuk's remaining tenure, commensurate with the AA3 rating. Our stressed assumptions incorporate a lower energy output, higher degradation, heftier operating and capital expenditure and distribution optimisation, including the RM3.75 mil management intends to pay out in October 2025. 

Typical of solar projects, the Plant faces long-term variability of solar irradiance. As a single-project company, SMS is also susceptible to force majeure and event risks, which are somewhat moderated by insurance policies, the Plant's modular nature and vast site.

Analytical