[MARC] MARC Ratings assigns preliminary rating of AA+IS to TNB Kuala Muda Solar’s proposed ASEAN Green SRI Sukuk Wakalah

MARC Ratings has assigned a preliminary rating of AA+IS to TNB Kuala Muda Solar Sdn Bhd’s (TKMS) proposed ASEAN Green Sustainable and Responsible Investment (SRI) Sukuk Wakalah of up to RM1.05 billion with a stable outlook.

TKMS is a special-purpose vehicle established to develop, own and operate a 500MWac solar photovoltaic plant in Bukit Selambau, Kedah. The company is wholly owned by TNB Renewables Sdn Bhd (TRe, AAA/Stable), which, in turn, is wholly owned by Tenaga Nasional Berhad (TNB, AAA/Stable). Proceeds from the sukuk issuance will fund 80% of the RM1.3 billion project cost, with the remainder financed through ordinary shares (10%) and redeemable preference shares (90%) to be issued to TRe.

The rating incorporates a two-notch uplift based on expected parental support from TNB, reflecting the project’s strategic importance and its close operational and financial integration with the ultimate parent. On a standalone basis, TKMS’ credit profile is supported by projected robust cash flow coverage under a 21-year power purchase agreement (PPA) with TNB. It also benefits from TRe’s strong track record in large-scale solar development, including three operational plants — one in Sepang, Selangor (50MW) and two in Bukit Selambau, Kedah (30MW and 50MW). These strengths are tempered by construction risk, as well as solar resource variability and performance uncertainty.

The project is TNB Group’s largest renewable energy venture to date, underscoring its strategic importance. The Group’s commitment is demonstrated by parent TRe’s undertaking to fund construction-phase liquidity shortfalls of up to 10% of total project costs as well as meet TKMS’ finance service reserve account and maintenance reserve account requirements. TRe’s capacity to provide support is strengthened by the financial standing and backing of TNB, including funding support for project-related investments. The assessment also takes into account strong operational integration, with TRe providing operations and maintenance (O&M) and asset management services and TNB serving as long-term offtaker.

TRe has a strong track record of delivering solar projects on time and within budget. For this 500MW project, construction is structured into three fixed-price engineering, procurement and construction (EPC) packages covering the solar plant, interconnection facilities, and substation works. Atlantic Blue Sdn Bhd, a subsidiary of Solarvest Holdings Berhad, will undertake the solar plant construction, while P.E.S.B. Engineering Sdn Bhd will be responsible for the interconnection and substation components. The EPC contractors have the requisite technical expertise and financial strength to meet the project timeline and contract terms. Equipment risks are mitigated through the use of proven technologies, reputable manufacturers, and comprehensive warranty coverage.

The EPC scheduled commercial operation date (COD, 31 July 2027) precedes the PPA scheduled COD (30 November 2027) by four months, providing a schedule buffer. A RM54.2 million contingency allocation and TRe’s liquidity support of up to 10% of project costs, mitigate cost overruns.

Once operational, the PPA requires TNB to purchase up to 1,092,047.42 MWh of TKMS’ annual generation (the maximum annual allowable quantity) at a fixed price, mitigating price and demand risks.

MARC Ratings assesses operational risk as moderate due to the straightforward operating profile of a solar power plant. Post-COD, Powertrack Sdn Bhd, a subsidiary of Solarvest Holdings, will operate the plant under a two-year O&M contract, after which TRe will take over operations. TRe’s existing solar assets achieved availability of 96%–99% in 2024.

Based on TKMS’ base case cash flows at P90 energy production, the average finance service coverage ratio (FSCR) is expected to be 2.33x, with a minimum of 2.04x. Distributions are subject to a post-distribution FSCR of 1.50x. Cash flows remain resilient under moderate stress scenarios, including a six-month construction delay, P99 energy production, 10% increase in operating costs, and 2.4% plant unavailability.

Amirul Rahul, +603-2717 2905/ rahul@marc.com.my
Sharidan Salleh, +603-2717 2954/ sharidan@marc.com.my