MARC has assigned a preliminary rating of AA-IS
to Quantum Solar Park (Semenanjung) Sdn Bhd’s (QSP Semenanjung) proposed Sukuk
Murabahah of up to RM1.0 billion. The outlook on the rating is stable.
This sukuk will be Malaysia’s first Green Sustainable and Responsible
Investment (Green SRI) Sukuk to be issued by a solar power producer. QSP
Semenanjung is a wholly-owned subsidiary of Quantum Solar Park Malaysia Sdn
Bhd, with the latter’s ownership interest equally divided among ItraMAS
Technology Sdn Bhd, MalTechPro Sdn Bhd and CamLite Sdn Bhd.
Proceeds from the proposed Green SRI Sukuk will be
utilised to construct three 50-megawatt (50MW) alternating current solar
photovoltaic (PV) power plants concurrently, one each in Gurun (Kedah),
Merchang (Terengganu) and Jasin (Melaka) owned by QSP Semenanjung’s three
wholly-owned project companies. With a combined capacity of 150MW, QSP
Semenanjung will be the largest solar power producer in the country. The total
project cost of about RM1.24 billion will be funded on an 80:20 sukuk-to-equity
financing basis. The equity of about RM250.3 million will be injected in QSP
Semenanjung before any of the project companies pay 90% of the amount payable
under their respective engineering, procurement and construction (EPC)
contracts or before any of the project company’s balance in the designated
accounts falls below RM10 million. The equity portion is backed by a bank
guarantee from a financial institution that carries a domestic rating of
AAA/stable or its equivalent from a rating agency.
The rating primarily reflects the adequate projected
cash flow coverage on the back of the 21-year solar power purchase agreements
(SPPA) with Tenaga Nasional Berhad (TNB), on which MARC maintains a senior
unsecured debt rating of AAA/Stable. The rating also considers the
well-structured contract arrangements with respect to the EPC and operations
and maintenance (O&M) of the plants. Moderating the rating are the risks
associated with project completion, uncertainty around the solar irradiance
estimates and overall plant performance.
The fixed-sum EPC contracts have been awarded to
Scatec Solar Solutions Malaysia Sdn Bhd (Scatec Malaysia), a wholly-owned
subsidiary of Scatec Solar ASA (Scatec). Scatec is a Norwegian-based solar
power plant developer and operator of 322MW solar power generating capacity.
QSP Semenanjung’s three solar plants are scheduled to achieve commercial
operation date (COD) concurrently on December 31, 2017 upon completion of the
10-month construction programme. MARC has assessed the experience and credit
profile of Scatec as adequate to undertake the projects although the
construction timeline for the project in Jasin is deemed tight due to the
longer duration required for site preparation. Nonetheless, the liquidated
damages (LD) provisions under the EPC contracts and the procurement of
insurance coverages for delays should address compensation payable to TNB and
potential cash flow mismatches arising from any delays.
Upon commencing commercial operations, the project
companies would receive stable cash flow streams under the SPPA terms which
also include entitlement to payments in the event TNB is not able to accept the
plants’ output. The O&M risk is mitigated by performance guarantee
provisions under the 18-year O&M agreements (OMA) with Scatec Malaysia. The
project companies are also covered by equipment warranties that are in line
with acceptable industry standards. The inverter warranties will be procured
for the term of the SPPAs. Additionally, a maintenance reserve which will be
built-up to RM12.0 million progressively within the first 10 years will serve
as a contingency for any maintenance requirements.
Key assumptions used in the cash flow projections’
base case include one-year P90 energy production levels, panel degradation at a
rate of 0.4% per annum and annual
escalation rate of 3% in O&M fees. The energy yield analysis has
incorporated sufficient modelling of data uncertainty using high quality
satellite meteorological data given the lack of ground data sources. Nonetheless, MARC believes that continuous and
quality monitoring of on-site data collection during the operational phase is
critical in reducing uncertainty in prospective solar irradiance estimates.
The project, based on the P90 resource probability
scenario, is expected to have minimum and average finance service cover ratios
(FSCR) of 1.56 times and 1.83 times respectively throughout the Green SRI Sukuk
tenure. Project debt coverage is deemed satisfactory under MARC’s moderate
stress scenarios which include a 4% project cost overrun, six-month delay in
project completion or 20% increase in operating expenses. MARC also derives
comfort that the project’s minimum FSCR is a commendable 1.48 times under a P99 resource probability scenario.
Construction cost overruns are partly mitigated by the project sponsors’
undertaking to fund any additional project cost of up to RM50 million which is
backed by a bank guarantee by a financial institution with a domestic rating of
AAA. Providing some cash flow protection under stressed scenarios is the
post-distribution FSCR covenant of 1.50 times throughout the proposed Green SRI
Sukuk tenure. Cash commingling risks are mitigated through the tight payment
waterfall structure and designated accounts controlled by the security agent.
The stable outlook reflects MARC’s expectation that
the project will achieve scheduled COD within the allocated budget and the project
sponsors will adhere to the pre-determined capital commitment and obligations
under the financing structure. Upon successful commencement of operations, the
rating may be revised upwards if the project manages to demonstrate that its
actual energy output is able to meet or exceed the projected estimates.
Contacts: Ng
Chun Kean, +603-2717 2940/ chunkean@marc.com.my;
Yap Lai Ken, +603-2717 2947/ laiken@marc.com.my;
David Lee, +603-2717 2955/ david@marc.com.my.
June 8, 2017
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