CREDIT ANALYSIS REPORT

QUANTUM SOLAR PARK (SEMENANJUNG) SDN BHD - 2020

Report ID 60521 Popularity 719 views 39 downloads 
Report Date May 2020 Product  
Company / Issuer Quantum Solar Park (Semenanjung) Sdn Bhd Sector Infrastructure & Utilities - Solar
Price (RM)
Normal: RM500.00        
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Rationale
MARC has affirmed its A+IS rating on Quantum Solar Park (Semenanjung) Sdn Bhd’s (QSP Semenanjung) Green Sustainable and Responsible Investment (SRI) Sukuk of up to RM1.0 billion. The rating outlook has been revised to positive from stable.  

Among the factors considered in revising the outlook is the financial service cover ratio (FSCR), following the full commencement of operations of the three 50MWac solar photovoltaic plants (SPP), that is in line with initial projections in 2017 at the inception of the project. The minimum and average pre-distribution FSCRs with cash are forecast at 1.61x and 2.04x (initial projections: 1.59x and 2.09x) throughout the tenure of sukuk. The support extended by the engineering, procurement and construction (EPC) contractor to defer its RM152.1 million payment has enhanced QSP Semenanjung’s cash position which has also been bolstered by a GST refund of RM32.5 million. The rating agency will continue to monitor the plants’ operational performance over the coming quarters and if the plants continue to exhibit operational performance consistent with projections, the rating could be upgraded. 

The affirmed rating incorporates the mitigation of demand risk through the 21-year power purchase agreement (PPA) that each of the three project companies – QSP (Kedah) Sdn Bhd, QSP (Melaka) Sdn Bhd and QSP (Terengganu) Sdn Bhd – has entered into with Tenaga Nasional Berhad (TNB) (AAA/Stable). The three project companies are subsidiaries of QSP Semenanjung. Under the PPAs, TNB will purchase the energy generated by the Gurun, Jasin and Merchang plants at a fixed rate and up to a certain limit. Moderating the rating are the variability of solar irradiance and risks associated with plant performance.

The Gurun, Jasin and Merchang plants achieved commercial operation on December 19, 2018, April 30, 2019 and May 31, 2019 following some construction delays. Due to the delays, QSP Semenanjung deferred payments to the EPC contractor, Scatec Solar Solutions Malaysia Sdn Bhd (Scatec Malaysia), to mitigate liquidity concerns. Scatec Malaysia is owned by one of the project sponsors, Norway-based Scatec Solar ASA (Scatec). Payments to the EPC contractor is conditional upon meeting post-distribution FSCR of 1.5x. 

In 2019, the Jasin and Merchang plants surpassed P90 estimates by 1.8%, leading to higher-than-projected revenue. However, the Gurun plant underperformed P90 estimates slightly by 0.4% due to teething issues that were rectified in March 2019. All three plants met the minimum requirement of 70% of declared annual quantity (DAQ) under the PPAs and achieved average plant performance ratio (PR) to date of 79.9% (Jasin), 80.1% (Merchang) and 77.5% (Gurun). The Gurun plant’s PR is lower than the first year average guaranteed PR of 78.3%; any slight shortfall is expected to be compensated by the EPC contractor.

Total revenue from electricity generation of RM104.8 million in 2019 was 0.8% higher than projections. Under the rating agency’s sensitivity scenarios, QSP Semenanjung is expected to comply with the post-distribution FSCR of 1.50x throughout the sukuk tenure. As at end-December 2019, total cash balances under the designated accounts stood at RM121.9 million (after a combined principal and profit payment of RM51.7 million was paid in early April 2020). This would be sufficient to repay its combined principal and profit payment of RM51.2 million which is due in early October 2020.

Following the global coronavirus disease (COVID-19) outbreak, the government has imposed a national Movement Control Order on all businesses except essential services. As electricity production is classified as an essential service, the plants’ operations have not been affected. 

Major Rating Factors

Strengths
Demand risk mitigated by terms in the PPA; and 
Cash flow metrics in line with initial projections.

Challenges/Risks
Maintaining operational performance of plants; and 
Variability in solar irradiance.
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