MARC Ratings has affirmed its AA-_IS rating on Quantum Solar Park (Semenanjung) Sdn Bhd’s (QSP Semenanjung) outstanding RM750.0 million Green Sustainable and Responsible Investment (SRI) Sukuk with a stable outlook. QSP Semenanjung owns three 50MW power plants located in Gurun, Kedah; Jasin, Melaka; and Merchang, Terengganu.

The rating affirmation reflects the good track record of energy generation at the plants. In keeping with the previous years’ performances, overall generation in 2023 exceeded P90 projections by 0.25%. Higher- than-projected generation was recorded at Jasin (+2.48%) and Merchang (+0.14%) during the year. This offset the lower output from Gurun (-1.75%) that was mainly due to minor rectification works on a transformer at the plant and the resulting downtime in January 2023. The Merchang plant experienced above-normal depth of flooding towards end-December 2023, causing minor damage to four of its 16 inverter stations. Preventive measures which include raising the mounting of the inverters are in place, while ongoing rectification work is expected to be completed by end-April 2024. The plant will still be able to operate at around 75% capacity during this period, and the financial impact in 2024 from revenue loss is estimated to be minimal at around RM1.3 million. 

In line with the steady operational performance, QSP Semenanjung’s revenue of RM135.4 million in 2023 was as budgeted. Cash flow from operations (CFO) stood at RM100.7 million. The company’s liquidity position remains strong with cash balances standing at RM163.6 million as at end-December 2023. This is more than sufficient to meet its RM97.5 million sukuk principal repayment and profit payment due in April and October 2024. Under base case projections — factoring in the estimated RM1.0 million revenue loss from the Merchang flood — QSP Semenanjung is expected to achieve minimum and average finance service coverage ratios (FSCR) of 1.87x and 2.30x. The projected cash flows can withstand moderate stress scenarios such as plant availability of 97.6%, a 10% increase in operations and maintenance cost or lower electricity generation under P99 estimates throughout the sukuk tenure.

The rating remains underpinned by the strength of QSP Semenanjung’s 21-year power purchase agreement (PPA) (expiring in 2039 for Gurun and 2040 for Jasin and Merchang) with offtaker Tenaga Nasional Berhad (TNB) (AAA/Stable). Under the agreement, the national power company will purchase energy generated by QSP Semenanjung’s plants at a fixed tariff rate, thereby mitigating the company’s exposure to demand risk. Significant variability in solar irradiance as well as operational performance issues stemming from unforeseen severe events/outages remain key risks to the company’s credit profile.

The stable outlook assumes that QSP Semenanjung’s plants will continue to generate energy in line with P90 energy generation projections and not encounter significant operational issues.

The rating could be upgraded if the plants continue to record strong operating performance and are able to build up a strong liquidity buffer and reduce borrowings.

Downward rating action could be triggered if the plants’ performance falls substantially below expectations due to unforeseen events such that QSP Semenanjung’s debt service coverage metrics are significantly impacted.