Renewable power producer Vidullanka PLC is planning to invest in a joint venture (JV) to develop a 50MW solar power plant in Malawi.

“The company has already secured funding for its share of investment (US $ 10 million) for the first phase of development,” Fitch Ratings said in a rating report.

Fitch Ratings recently assigned a National Long-Term Rating of ‘A+(Ika)’, with a Stable Outlook, to Vidullanka PLC. 

At the same time, the agency has assigned a National Short-Term Rating of ‘F1(lka)’ to Vidullanka’s two issuances of unlisted commercial paper of Rs.100 million each. 

Fitch said the ratings reflected Vidullanka’s weak counterparty, the Ceylon Electricity Board (CEB, B(lka)/Stable), which is offset by the power producer’s relatively strong cash flows from overseas operations, small operating scale, long-term power purchase agreements (PPAs), with fixed tariffs and modest financial profile, amid a significant increase in domestic funding costs.

Fitch said Vidullanka’s ratings are constrained by its exposure to the CEB, the sole electricity transmitter and distributor in Sri Lanka, that has a weak credit profile. 

As of December 2022, payments from the CEB have delayed for more than 600 days. 

Fitch expects the CEB payment delay to ease gradually, supported by a likely improvement in the CEB’s cash flows, following the total increase in the power tariff of nearly 190 percent over the last year (75 percent in August 2022; 65 percent in February 2023).  Fitch forecasts receivable days for Vidullanka’s power plants in Sri Lanka to improve but remain at around 600 days for the financial year ending in March 2024 (FY24) and improve further thereafter. 

However, growing contribution from overseas operations and the engineering, procurement and construction (EPC) segment should keep Vidullanka’s consolidated receivables manageable at below 200 days, the rating agency noted.

“We believe Vidullanka’s diversification overseas mitigates the risks from its exposure to the CEB. We expect the strong cash flows from the company’s Ugandan projects to support positive cash flow from operations. 

We estimate the Ugandan projects to account for about 90 percent of Vidullanka’s EBIT in FY23 (FY22: 80 percent), given their US dollar-denominated cash flows and depreciation of Sri Lankan rupee during the year. According to the company, it has full access to the cash at the Ugandan operations after servicing debt obligations,” Fitch said.