RAM Ratings removes Rating Watch, downgrades SPR Energy’s Senior Sukuk to B1/Negative

Published on 01 Nov 2023.

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RAM Ratings has lifted the Negative Rating Watch on SPR Energy (M) Sdn Bhd’s (SPR or the Company) Senior Sukuk Ijarah of RM580 mil (the Sukuk) and downgraded the rating from BBB2 to B1. The outlook remains negative. SPR is an independent power producer (IPP) that owns and operates a 100 MW combined-cycle, gas turbine power plant in Kimanis, Sabah (the Plant). The Rating Watch was placed on 9  June 2023 (see media release here) following an unexpected flashover incident at the Plant – specifically, the second gas turbine (GT2) generator – causing it to operate at half load from 31 March 2023 to 25 August 2023.

The downgrade is premised on the Company’s significantly weakened cashflow buffers, which were exacerbated by the substantial revenue loss from this recent setback. The B1 rating reflects SPR’s very weak capacity to meet sukuk obligations and limited ability to withstand any adverse operational challenges. Given this, our simulations show that the transaction will face possible default in July 2025, as opposed to the July 2029 date projected in the last rating review. Our analysis also assumes the partial receipt of insurance claims submitted by SPR pursuant to GT2’s operational failure. Any delay in receipts or if lower than expected, will further tighten the transaction’s already strained  liquidity position. 

The negative outlook has been retained to reflect our pressing concerns over the Company’s near-term debt-servicing ability. In the event of continued cashflow underperformance, SPR might also not meet the Sukuk’s required minimum balance in the Finance Service Reserve Account (FSRA) (in January 2024 and January 2025). Failure to remedy a possible breach within 30 days will be an event of default for the Sukuk. The RM10.65 mil of funds currently in the FSRA as at 30 August 2023 are nevertheless sufficient to meet the RM9.75 mil of profit payments falling due on 17 January 2024. 

As of end-December 2022, the Plant’s rolling unscheduled outage rate was 5.62%, against the power purchase agreement’s (PPA) strict limit of 4%, resulting in Available Capacity Payment (ACP) losses of RM8.79 mil or 7% of SPR’s total revenue. The outages were caused by several issues including repeated heat recovery steam generator (HRSG2) leakages (since 2018). Major replacement works to replace affected components were eventually completed in December 2022 after having been deferred several times (since July 2022).

Owing to GT2’s unexpected shutdown in 2023, the Plant’s declared available capacity was at 51.91 MW for the five months between April and August 2023. This essentially halved SPR’s monthly ACPs which are typically calculated based on an available capacity of 100 MW. Consequently, the Plant logged its highest forced outage rate of 22.44% as at end-August 2023. Aside from the RM3.81 mil of resulting ACP losses, SPR also forwent RM15.29 mil of ACPs and Daily Utilisation Payments (DUPs). The cumulative revenue loss for 8M FY Dec 2023 was a substantial 33% of revenue for the period. While damaged components have been replaced and GT2 is back online, the effectiveness of repairs can only be determined in time. 

Despite the challenges, SPR’s business fundamentals remain underscored by the terms of its PPA, under which performance requirements are stricter compared to PPAs of other RAM-rated IPPs. The Company is entitled to earn fixed ACPs, irrespective of the quantum of electricity generated, so long as it meets the unscheduled outage limits. SPR may also fully pass through fuel expenses to its sole offtaker, Sabah Electricity Sdn Bhd (SESB), if it operates within the PPA heat rate limits, which the Company has consistently adhered to. Receivables from SESB have generally been promptly settled within two months of receipt of invoice.


Analytical contacts
Seri Nuralya Munawir
(603) 3385 2484

Chong Van Nee, CFA
(603) 3385 2482


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