Published on 03 Feb 2023.
RAM Ratings is keeping the BBB2/Negative rating of SPR Energy (M) Sdn Bhd’s (SPR or the Company) Senior Sukuk Ijarah of RM580 mil (the Sukuk) under close surveillance after confirmation from the Company that its Finance Service Reserve Account (FSRA) balances failed to meet the required minimum balances, as covenanted under the transaction documents. On 27 January 2023, the Company’s cash reserves summed up to RM50.47 mil, with the FSRA balance of RM49.5 mil slightly below the RM50.65 mil required to meet sukuk obligations due on 17 July 2023.
In accordance with the transaction’s financial covenants, SPR is obliged to maintain FSRA balances equivalent to the principal and profit payments due in the next six months. In view of the 30-day remedy period under the transaction, the Company has until 16 February 2023 to bridge the RM1.14 mil gap. Given SPR’s net cash flows of RM4 mil to RM5 mil generated monthly, management is confident that the Company will restore the required FSRA balance within the grace period. However, failure to do so will be tantamount to a breach of obligations under the Sukuk, constituting an Event of Default (EoD). The sukuk trustee via a sukukholders’ extraordinary resolution may declare an EoD in such a case, following which all outstanding amounts under the Sukuk shall become immediately due and payable.
As indicated in our last review (see rationale published on 3 June 2022), we foresee a persistent shortfall in the FSRA every 17 January throughout the Sukuk’s remaining tenure owing to the cumulative effects of cashflow underperformance arising from past operational issues faced by SPR’s 100MW combined-cycle gas turbine power plant in Kimanis, Sabah. This underscores the negative outlook on the BBB2 rating. We understand that delayed major rectification works previously scheduled for July 2022, were fully completed before the end of last year.
RAM’ annual review of the Sukuk’ rating is scheduled for April where we will conduct a more complete assessment of the transaction’s performance. Until then, we will continue to maintain close monitoring of the transaction.
Seri Nuralya Munawir
(603) 3385 2484
Chong Van Nee, CFA
(603) 3385 2482
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Ratings on SPR Energy (M) Sdn Bhd