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RAM Ratings again reaffirms NUR Power's sukuk ratings at AAA(bg) and AAA(fg)

July 24, 2014

RAM Ratings has reaffirmed the respective AAA(bg)/Stable and AAA(fg)/Stable ratings of Tranche 1 and Tranche 2 of NUR Power Sdn Bhd'sMYR 650 million Guaranteed Sukuk Mudharabah (2012/2027) . The ratings reflect the irrevocable and unconditional guarantees from Maybank Islamic Berhad and Danajamin Nasional Berhad, which enhance the credit profile of the Sukuk beyond NUR Power's stand-alone credit strength.

NUR Power, involved in the generation and distribution of electricity, is mandated to generate, distribute and sell electricity to tenants of Kulim Hi-Tech Park (KHTP) for a period of 30 years until 16 September 2028.

The Group's top five customers, from the solar-panel manufacturing (Solar) and electric and electronic (E&E) industries, contributed 75 per cent of its top line in fiscal 2013, which exposes it to sector-concentration risk. Overall, except for the E&E Industry, all industry segments saw an increase in power uptake in fiscal 2013. The Solar Industry had the largest increase in power uptake in 2013, i.e. 8.95 per cent. This, coupled with organic growth, contributed to the increase in the Group's overall power sales. Its single largest customer, from the Solar Industry, accounted for 28 per cent of sales, thus exposing it to customer-concentration risk.

NUR Power lacks the flexibility to adjust its tariffs. As the Group purchases power from Tenaga Nasional Berhad during plant downtimes or when there is excess demand, any additional power purchased makes it susceptible to margin compression. As NUR Power relies solely on gas to run its plant, the Group might face margin compression if any future electricity tariff revisions do not increase proportionately with gas prices. Furthermore, the Group's generation assets face capacity deration during high ambient temperature. Nevertheless, we note that the resultant net capacity after deration from the nominal 220 MW capacity would still amply cover the current maximum demand at KHTP.

As at end-December 2013, NUR Power's gearing had improved slightly to 0.91 times. Its gearing level is expected to hover at 0.73 times until 2016, subsequent to the partial redemption of the Sukuk in June 2014, before improving as the repayment of the Sukuk begins.

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Source: CPI Financial

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