RAM Ratings assigns AA2/Stable preliminary rating to Solarpack Suria Sungai Petani’s proposed green sukuk of up to RM305 million

Published on 10 Feb 2023.

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RAM Ratings has assigned a long-term preliminary rating of AA2/Stable to Solarpack Suria Sungai Petani Sdn Bhd’s (3SP, the Company) proposed ASEAN Green SRI Sukuk Wakalah of up to RM305 mil (2023/2043) (Proposed Sukuk). Proceeds from the Proposed Sukuk will be utilised to refinance the bridging loan taken to fund the Plant’s construction. The rating considers a one-off issuance of RM285 mil. The Company’s Green Sukuk Framework was also reviewed by RAM Sustainability Sdn Bhd.

3SP is an independent power producer (IPP) with a 21-year power purchase agreement (PPA) with Tenaga Nasional Berhad (TNB), awarded under Malaysia’s Large-Scale Solar 3 (LSS 3) Scheme. The Company is contracted to design, construct, own, operate and maintain a 90.88MWac solar photovoltaic (PV) plant (the Plant) in Sungai Petani, Kuala Muda, Kedah. The Plant achieved commercial operations on 8 March 2022.

3SP is 51:49 owned by JKH Renewables Sdn Bhd (JKH) and Solarpack Asia Sdn Bhd (Solarpack Asia), as per the Energy Commission’s shareholding requirement for LSS projects. The terms of the tripartite Shareholders’ Agreement between 3SP, JKH and Solarpack Asia and the sukuk financing however, provide that Solarpack Asia retains management and operational control of 3SP. Solarpack Asia’s control of 3SP is further evidenced by the accounting consolidation of 3SP in the former’s books despite it not being a majority shareholder. Solarpack Asia is a wholly-owned subsidiary of Solarpack Corporación Tecnológica, S.A.U. (Solarpack CT), an experienced Spanish solar PV power plant developer and owner. Solarpack CT, established in 2005, has developed more than 1GW of solar plants and owns 17 generating plants in Spain, Chile, Peru and India, with a combined capacity of 671 MW.

The preliminary rating reflects 3SP’s sound project fundamentals, underscored by favourable PPA terms. As with other solar projects, 3SP faces minimal demand risk as TNB (Sukuk rated AAA/Stable by RAM) is required to purchase all the energy generated by the Plant at a fixed energy rate up to a maximum annual limit. The Plant’s initial energy output of 153.4 GWh for the first eleven months is already 0.5% above RAM’s stressed energy generation forecast, a level that is expected to sustainably exceed the PPA’s annual minimum required amount throughout the Proposed Sukuk’s tenure based on RAM’s analysis. The Plant’s long-term performance will be supported by the deployment of reputable key components, such as LONGi solar PV panels, Sungrow Inc central inverters and D&ST step-up transformers, which come with standard product warranties.

RAM’s stressed analysis assumes higher unavailability and degradation rates, which result in a lower energy output, along with heftier operating expenses (opex) and capital expenditure (capex). The higher unavailability considers a potentially longer downtime for the repair and servicing of  transformers, which is not commonly used in TNB’s grid, as well as the absence of string-level monitoring in the Plant’s control system. The latter does not facilitate centralised monitoring and is generally not in line with industry practice, an observation also shared by the independent technical advisor. Despite our sensitivities to address for these risks, 3SP’s cash generating ability remains robust, with respective projected minimum and average finance service coverage ratios (FSCRs) (with cash balances, post-distribution) of 1.77 times and 2.04 times, commensurate with an AA2 rating.

Based on the transaction’s terms and distribution covenants, our analysis indicates that 3SP would need to rely on brought forward cash balances in certain years and ensure sufficient cash retention to maintain this level of debt-coverages. The transaction will include a Sinking Fund Account (SFA) which will reserve for additional build up in cash balances to meet its sukuk obligations, in addition to the minimum required balance in the Finance Service Reserve Account. 3SP must also maintain funds in the SFA as well as the Maintenance Reserve Account in accordance with the amounts in the base case financial model before any restricted payments, including dividend distributions, can be made. 3SP must further ensure that it achieves an FSCR of at least 1.65 times prior to making any such payment. Even so, excessive distributions in the early years (although permissible under the covenants) may still compromise future debt coverage levels, if not managed carefully.

In the medium term, the Sukuk terms provide 3SP the option to procure an inverter warranty extension of up to 25 years upon the expiry of the initial 5-year warranty from Sungrow instead of funding the MRA. This is subject to the Company providing documentary evidence of the extension to the Sukuk Trustee and obtaining written confirmation from an appointed technical adviser and RAM that such extension is not adverse. While Sungrow is a reputable equipment supplier, RAM views this as unfavourable from a credit perspective if exercised, as 3SP may be exposed to the risk of protracted service response and long-term business viability risk. This is the first transaction in RAM’s rated portfolio to feature an inverter warranty extension option.

As a single-project company, 3SP is exposed to force majeure risk. The impact of a major operational failure, however, is moderated by the Plant’s modular structure and vast 204-acre site. The Company’s comprehensive array of insurance policies may not fully compensate it for financial losses from such an event on a timely basis. Regulatory risk is also inherent in the operations of IPPs. Long-term concessions often attract public scrutiny and may be subject to changes in government policies. That said, the Government is supportive of solar projects, underlined by the Malaysian Renewable Energy Roadmap.


Analytical contacts
Lee Jo Yee
(603) 3385 2583

Chong Van Nee, CFA
(603) 3385 2482


The credit rating is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.

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Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.

Published by RAM Rating Services Berhad
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