[RAM] RAM Ratings affirms B1/Negative rating of SPR Energy's Senior Sukuk

RAM Ratings has affirmed the B₁/Negative rating of SPR Energy (M) Sdn Bhd’s (SPR or the Company) RM580 million Islamic Medium-Term Notes (2017/2035) (Senior Sukuk). 

The rating continues to reflect SPR’s very weak capacity to fully meet sukuk obligations and the Company’s limited ability to withstand any adverse operational challenges of its 100 MW combined-cycle, gas turbine power plant in Kimanis, Sabah (the Plant). 

Over the period in review, SPR successfully met the minimum required finance service reserve account (FSRA) balance by February 2025, within the grace period. This was due to a better-than-expected plant operating performance. In FY Dec 2024, SPR recorded significantly lower unplanned outage of 365 hours (FY Dec 2023: 1,917 hours) following repair works on the Plant’s second gas turbine generator in the previous year. Unplanned outages were primarily caused by breakdowns from wear and tear, lasting no more than a month. Consequently, SPR’s available capacity payment (ACP) losses fell to RM3.0 mil or 2% of total revenue – the lowest level seen in the last five years (fiscal 2023: RM19.7 mil, 20% of total revenue). As a result, SPR returned to the black with a pre-tax profit of RM2.4 mil, its first positive profit recorded since FY Dec 2022. 

Nonetheless, we will remain vigilant to determine if the recent improvements in the Company’s financial performance can be sustained, given the Plant’s volatile history. The Plant remains vulnerable to unplanned maintenance needs as it approaches its 11th year of operation. Without an external liquidity injection, our simulated cash flow scenarios indicate that the transaction remains susceptible to a possible default in July 2027, albeit a year later than our previous expectation of July 2026. As such, the rating outlook remains negative. Under RAM’s sensitised scenario, the Company may likely breach the FSRA requirement in January 2026 and January 2027. The failure to remedy any breach within 30 days will constitute an event of default for the Sukuk, unless sukukholders grant indulgence.  

Despite these challenges, SPR’s business fundamentals remain underscored by the terms of its power purchase agreement (PPA), the performance requirements of which are stricter than that 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’s heat rate limits, which the Company has consistently adhered to. SESB is deemed a strong counterparty on account of ongoing financial support that it receives from the federal government. Receivables from SESB have generally been promptly settled within two months of receipt of invoice.


Analytical contacts
Chong Van Nee, CFA
(603) 3385 2482
vannee@ram.com.my

Karin Koh, CFA
(603) 3385 2508
karin@ram.com.my