MARC has issued this update on Jimah East Power Sdn Bhd (JEP) following the announcement of a delay in its power plant achieving commercial operation date (COD) as scheduled. JEP is developing a 2x1,000MW ultra-supercritical coal-fired power plant in Jimah, Negeri Sembilan under a 25-year power purchase agreement (PPA) with Tenaga Nasional Berhad (TNB). Upon completion of construction, JEP will operate the power plant.

MARC affirmed its rating of AA-_IS/Stable on JEP’s outstanding RM8.98 billion Sukuk Murabahah on March 6, 2019, proceeds of which have been utilised to finance construction of the power plant.

The power plant’s COD was originally scheduled on June 15, 2019 but has now been delayed owing to some defects detected at the high-pressure turbine during the project commissioning phase. MARC has been informed that remedial works are currently in progress and JEP expects the power plant to achieve COD within the next three months. At this juncture, MARC views that no rating action is warranted given that the projected cash flow coverage supports its debt servicing ability for a delay of up to three months.

Under MARC’s sensitised scenario of a three-month delay, JEP would be able to comply with the minimum financial service cover ratio of 1.25x throughout the tenure of the sukuk. MARC draws comfort from the credit strength of TNB, a key project sponsor, which has significant strategic and financial interests in the power plant project. TNB currently has 70% direct shareholding in JEP with the remaining held by Mitsui & Co. Ltd (15%) and The Chugoku Electric Power Co. Ltd (15%).

JEP is expected to recover the losses in relation to the delay via liquidated damage claims from the engineering, procurement and construction (EPC) consortium. The EPC consortium consists of Japan’s IHI Corporation and Toshiba Corporation; South Korea’s Hyundai Engineering & Construction Co. Limited and Hyundai Engineering Co. Limited and Ishi Power Sdn Bhd and TOS Energy Malaysia Sdn Bhd.

The rating agency will monitor the progress of JEP and take the appropriate rating action if rectification works do not proceed as planned that could lead to a further delay in COD.

Contacts:
Lim Chi Ching, +603-2717 2963/ chiching@marc.com.my;
Sharidan Salleh, +603-2717 2954 / sharidan@marc.com.my.