The respective AA3 and A2 ratings of Telekosang Hydro One Sdn Bhd's (TH1 or the Issuer) RM470 mil ASEAN Green SRI Sukuk (2019/2037) (Senior Sukuk) and RM120 mil ASEAN Green Junior Bonds (2019/2039) remain on Negative Watch. Though there has been some positive progress since the last rating update in November 2023, in addressing RAM's earlier concerns, the transaction failed to meet the minimum required balance for its covenanted Finance Service Reserve Account (FSRA) on 6 February 2024, as expected. 

This was due to the protracted resolution of claims for liquidated damages (LDs) from the engineering, procurement, construction and commissioning (EPCC) contractor for the late completion of the Issuer's 24 MW small hydro power plant and the 16 MW similar plant held under its sister company, Telekosang Hydro Two Sdn Bhd (TH2). 

The 16 MW plant, in the meantime, successfully reached its feed-in-tariff commencement date on 26 December 2023 though TH2 has yet to generate cashflow. This will materialise once billings to Sabah Electricity Sdn Bhd (SESB) (its sole offtaker) commences after official approval is obtained from the newly established Energy Commission of Sabah. The Issuer expects to get the green light by the end of this month. Once achieved, this would enable the combined cashflow of TH1 (commercially operational since mid-February 2023) and TH2 to support the repayment of the Issuer's debt obligations.   

As of 6 February 2024, the transaction had cash balances totalling RM16.9 mil in designated accounts and a RM12.5 mil bank guarantee, which fell short of the required minimum FSRA balances of RM32.2 mil. In view of continued uncertainties in finalising LDs from the EPCC contractor  Sinohydro Corporation (M) Sdn Bhd and Power Construction Corporation of China, Limited  Jentayu Capital Sdn Bhd (the transaction sponsor and TH1's ultimate controlling shareholder) has sought to provide advances to boost the Issuer's liquidity position. 

In this respec