RAM Ratings has downgraded the rating of Telekosang Hydro One Sdn Bhd's (TH1 or the Issuer) RM470 mil ASEAN Green SRI Sukuk (2019/2037) (Senior Sukuk) to BBB1 from A1. Concurrently, the rating of its RM120 mil ASEAN Green Junior Bond (2019/2039) (Junior Bonds) has been lowered to BB2 from BBB1. Both ratings remain on Rating Watch with a Negative outlook, reflecting increased execution, liquidity and recovery risks for the transaction, following the prolonged outage of the project assets. 

The rating actions reflect a marked deterioration in TH1's debt-servicing ability after severe floods in February 2026 forced the shutdown of its two small hydropower plants from 24 February 2026. In our view, the prolonged loss of generation has materially increased the liquidity stress and the likelihood of a payment default in August 2027, in the absence of timely and sufficient external liquidity support. Without such support, TH1 could face further downward rating pressure. The Senior Sukuk and Junior Bonds are serviced from the combined cashflow generated by TH1 and its sister company, Telekosang Hydro Two Sdn Bhd (TH2) (collectively, the Group or Project Companies), from their respective small hydropower plants.

Despite the increased default risk, the Senior Sukuk's rating considers potential recoveries that could become available over the next few months. These include insurance proceeds for business interruption losses arising from the current plant downtime and possible performance bond recoveries, with the latter subject to the resolution of the ongoing legal suit/arbitration with the contractor by end-2026. 

Under RAM's scenario analysis, which assumes the Plants are recommissioned only by February 2027 and generate no cashflows up to June 2027, estimated loss of revenue insurance proceeds of RM49 mil could be sufficient to preserve the Senior Sukuk's investment grade rating, provided plant rehabilitation progresses as planned and claims are received in a timel