MARC is issuing this update on Southern Power Generation Sdn Bhd’s (SPG) Sukuk Wakalah to highlight the potential impact from a force majeure declaration made by the engineering, procurement and construction (EPC) contractor on the 2x720MW combined cycle gas-fired power plant project being undertaken by the company in Pasir Gudang. The declaration arose from the imposition of the Movement Control Order (MCO) by the government of Malaysia, which has resulted in a nationwide stop work order for construction and commissioning activities, as well as from the various restrictions and lockdowns in countries where the EPC specialists supporting the project reside.

SPG has also applied a force majeure relief under Clause 20.3 of the power purchase agreement (PPA) with Tenaga Nasional Berhad (TNB) which has a 51% stake in the company. MARC notes that the construction of the power plant is at 99.5% as of end-February 2020, with the remaining minor works related to road pavement and drainage. However, the commissioning works stood at 77.0%, and the scheduled commercial operation date (COD) is July 1, 2020. With the MCO still in place, the duration of which is uncertain at this juncture, the COD is likely to be delayed. 

Under the PPA, the scheduled COD can be extended by the number of days it has been delayed by the force majeure event. The rating agency also notes that under the PPA, in the occurrence of a force majeure event, an extension of time (EOT) will be granted with no liquidated damages imposed on SPG. 

In MARC’s assessment, SPG has sufficient liquidity to meet its sukuk obligations in 2020 from the pre-funded finance service reserve account (FSRA) of RM184.5 million. The FSRA will be funded before the scheduled COD through a drawdown from its junior facility or subscription of redeemable preference shares by shareholders. 

The rating agency will monitor the commissioning progress, assess the implication on cash flows from the length of the delay in achieving COD and take appropriate rating action if necessary. 

Contacts:
Lee Chi Han, +603-27172939 / chihan@marc.com.my;
Sharidan Salleh, +603-2717 2954 / sharidan@marc.com.my.