MARC has issued this update as part of the ongoing monitoring of TNB Northern Energy Berhad (TNB Northern Energy) following a recent development in its power plant project in Seberang Perai Tengah, Pulau Pinang. TNB Northern Energy, an indirect wholly-owned subsidiary of Tenaga Nasional Berhad (TNB), has issued RM1.625 billion sukuk to fund the construction of a 1,071.43-megawatt gas-fired power plant. The sukuk has a rating of AAA_IS with a stable outlook from MARC.

TNB Northern Energy has postponed the plant’s commercial operation date (COD) to February 13, 2016 from January 1, 2016 to address design issues and defects discovered during the project commissioning phase. MARC views that no rating action is warranted at this juncture as a result of the postponement given that the structural enhancement on the sukuk provides sufficient recourse for delays. TNB has provided a completion guarantee of up to 10% of the project cost (approximately RM249 million) that would allow TNB Northern Energy to withstand an additional 12 months delay in the revised COD. Any shortfall in TNB Northern Energy’s finance obligations on the sukuk would also be adequately addressed by the unconditional and irrevocable rolling guarantee provided by TNB in favour of the sukukholders.

TNB Northern Energy is expected to recover the losses in relation to the delay via liquidated damage claims from the engineering, procurement and construction contractor Samsung C&T (KL) Sdn Bhd. MARC believes that TNB Northern Energy is undertaking necessary steps to achieve the COD within the revised date. The rating agency will monitor the progress of TNB Northern Energy and take appropriate rating action, if necessary.

Contacts:
Ng Chun Kean, +603-2082 2230/ chunkean@marc.com.my;
David Lee, +603-2082 2255/ david@marc.com.my.