MARC RATINGS ASSIGNS PRELIMINARY AA-IS RATING TO SUNGAI UDANG WTE'S PROPOSED SUKUK

MARC Ratings has assigned a preliminary AA-IS rating to Sungai Udang WTE Sdn Bhd's (SUWTE) proposed RM700.0 million ASEAN Green SRI Sukuk Wakalah Programme, with a stable outlook.

SUWTE is a special purpose vehicle established to develop and operate a 22.1MW waste-to-energy (WTE) facility in Sungai Udang, Melaka, under a 34-year concession agreement (CA) with the government. Electricity generated by the facility will be sold to Tenaga Nasional Berhad (TNB, AAA/Stable) under a 21-year power purchase agreement (PPA). SUWTE is 60%-owned by Malakoff Corporation Berhad (Malakoff), with the remaining 40% held by Alam Flora Environmental Solutions Sdn Bhd (AFES), a wholly-owned subsidiary of Alam Flora Sdn Bhd, which is in turn 97.37%-owned by Malakoff.

The rating reflects the project's predictable revenue profile, underpinned by gate fee income under the CA and electricity sales under the PPA, as well as its well-structured contractual framework and construction and operational risk mitigants. These strengths are moderated by execution risk associated with the group's maiden WTE project, particularly its exposure to potential construction delays and cost overruns.

Under the CA, SUWTE receives gate fees based on the tonnage of waste delivered to the facility, with payments made by Solid Waste and Public Cleansing Management Corporation, the federal agency responsible for overseeing solid waste management in Peninsular Malaysia. The PPA requires TNB to purchase electricity generated by the facility up to the agreed capacity, providing revenue visibility and mitigating electricity demand risk. Together, these contractual arrangements underpin the project's two key revenue streams and reduce its exposure to supply, demand and counterparty risks.

Construction risk of the WTE plant is moderated by the established technical expertise and track record of the engineering, procurement,