MCO: Tenaga 51%-owned subsidiary declares force majeure

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KUALA LUMPUR (April 10): Tenaga Nasional Bhd’s 51%-owned subsidiary Southern Power Generation Sdn Bhd (SPG) has made a force majeure declaration due to Malaysia’s Movement Control Order (MCO) and restrictions in countries where the engineering, procurement and construction (EPC) specialists supporting the project reside, according to Malaysian Rating Corporation Bhd (MARC).

A force majeure is an unforeseen situation which prevents someone from fulfilling a contract.

MARC said, in a press statement yesterday, SPG has also applied force majeure relief under Clause 20.3 of the power purchase agreement (PPA) with Tenaga.

"MARC is issuing this update on SPG Sukuk Wakalah to highlight the potential impact from a force majeure declaration made by the EPC contractor on the 2x720MW combined cycle gas-fired power plant project being undertaken by the company in Pasir Gudang. MARC notes that the construction of the power plant is at 99.5% as of end-February 2020, with the remaining minor works related to road pavement and drainage. However, the commissioning works stood at 77.0%, and the scheduled commercial operation date (COD) is July 1, 2020. With the MCO still in place, the duration of which is uncertain at this juncture, the COD is likely to be delayed.

"Under the PPA, the scheduled COD can be extended by the number of days it has been delayed by the force majeure event. The rating agency also notes that under the PPA, in the occurrence of a force majeure event, an extension of time will be granted with no liquidated damages imposed on SPG.

"In MARC’s assessment, SPG has sufficient liquidity to meet its sukuk obligations in 2020 from the pre-funded finance service reserve account (FSRA) of RM184.5 million. The FSRA will be funded before the scheduled COD through a drawdown from its junior facility or subscription of redeemable preference shares by shareholders. The rating agency will monitor the commissioning progress, assess the implication on cash flows from the length of the delay in achieving COD and take appropriate rating action if necessary,” MARC said.

At 10.25am today, Tenaga’s share price rose two sen or 0.17% to RM12.06 for a market capitalisation of RM68.47 billion. The stock saw 188,500 shares traded.

Malaysia’s MCO, which was initially scheduled between March 18 and 31, requires non-essential businesses to stop operations, while the public has been ordered to stay at home to curb the Covid-19 outbreak. 

On March 25, Prime Minister Tan Sri Muhyiddin Yassin said the government decided to extend the MCO until April 14, because updates from the National Security Council and Health Ministry indicated an increase in Covid-19 cases.

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