RAM Ratings is closely monitoring developments relating to a recent lawsuit involving the shareholders of reNIKOLA Solar Sdn Bhd. Kazuomi Kaneto and DPI Solar 1 Pte Ltd brought an action against 25 others, seeking damages for allegedly inducing breach of contract and conspiracy to injure in respect of two 30 MWac solar projects in Kuala Muda, Kedah, and Machang, Kelantan.
The suit named Lim Beng Guan (a director of the company), reNIKOLA Holdings Sdn Bhd – (the sole shareholder of reNIKOLA Solar) and reNIKOLA Sdn Bhd (an ultimate shareholder), and Pimpinan Ehsan Bhd (would-be shareholder, pending regulatory approval under an ongoing corporate exercise) as co-defendants.
Rated AA3/Stable by RAM, reNIKOLA Solar’s RM390 mil ASEAN Green SRI Sukuk (the Sukuk) is supported by three other unrelated solar projects – a 3.996 MWac plant in Arau, Perlis; a 29.916 MWac plant in Gebeng, Pahang; and a 30 MWac plant in Pekan, Pahang. Structured as a project-financed transaction, the underlying solar projects and their combined cashflows are assigned to the sukukholders. The transaction’s designated accounts – in which all revenue from as well as budgeted operating expenditure and capital expenditure for the projects are deposited – are also charged and secured for the benefit of the sukukholders, with the terms of the sukuk financing documents governing payment priority and allocation.
All designated accounts for the company and the three projects are controlled by the Security Trustee, except for the respective Operating Accounts and Maintenance Reserve Accounts (MRAs). The risk of excessive annual opex and capex is limited as annual expenses exceeding 10% of the initial budget set during the Sukuk’s issuance will be subject to sukukholders’ approval. These measures are designed to provide control over the transaction’s flow of funds and minimise the risk of cashflow leakage.
In addition to restrictions on the company’s business activities, the financing terms of the Sukuk further prohibit dividends and all other payments subordinated to the Sukuk, including those made to the Issuer’s directors, shareholders, related and associated companies, unless a set of distribution covenants is met. Among others, the Issuer must meet a finance service coverage ratio (with cash balances, post-distribution, calculated on principal and profit payment dates) of 1.50 times and maintain minimum required balances in the Sukuk’s Finance Service Reserve Account and MRAs.
At this juncture, RAM is unable to ascertain adverse effects and related costs that may arise from the legal action, which could potentially be a long-drawn-out process. This might pressure the company into increasing future dividends or subordinated payments to shareholders, where excessive payments (albeit without breaching covenants) in the early years of the Sukuk could compromise the Issuer’s debt coverage in later years. Notably, reNIKOLA Holdings has recently completed a RM152.5 million share subscription by B.Grimm Power (Malaysia) Sdn Bhd, a wholly owned subsidiary of a Thai-based multinational conglomerate and an active investor in renewable energy.
While the share sale proceeds should help address immediate concerns on the need for dividends from reNIKOLA Solar, RAM said it will continue to monitor developments on this front and will update the market as and when more details become available.