MARC Ratings has upgraded the ratings of Southern Power Generation Sdn Bhd (Southern Power) and Jimah East Power Sdn Bhd (JEP) following a reassessment of the likelihood of parental support from their ultimate holding company, Tenaga Nasional Berhad (TNB). The rating upgrades reflect MARC Ratings’ view that there is now a high likelihood of parental support, underpinned by the increasing strategic importance of Southern Power’s and JEP’s generation assets and their critical role in maintaining the reliability of electricity supply in Peninsular Malaysia.
The reassessment is driven by MARC Ratings’ greater clarity regarding TNB’s commitment to preserving generation adequacy and ensuring reliable capacity amid rising electricity demand, including demand arising from the rapid expansion of data centres. Against this backdrop, any operational or financial disruption at these assets could have significant implications for TNB’s generation objectives, system reliability and national energy security. MARC Ratings therefore believes that TNB is likely to provide timely financial and operational support, if required. This strengthened expectation of parental support underpins the rating upgrades.
Accordingly, MARC Ratings has upgraded the ratings on Southern Power’s outstanding RM2.7 billion Sukuk Wakalah and JEP’s outstanding RM7.67 billion Sukuk Murabahah to AA+IS/Stable. The ratings incorporate a two-notch uplift from the issuers’ standalone credit profiles, reflecting the stronger assessment of parental support.
TNB holds an indirect 70% stake in both entities through its wholly-owned subsidiary, TNB Power Generation Sdn Bhd (TPGSB). Southern Power’s 1.44GW gas-fired plant and JEP’s 2.0GW coal-fired plant account for approximately 9.5% and 13.2%, respectively, of TPGSB’s contracted generation capacity, underscoring their strategic importance within TNB’s generation portfolio. As key baseload facilities, both plants play a critical role in supporting the reliability of electricity supply in Peninsular Malaysia. Their scale and operational significance strengthen TNB’s incentive to ensure their continued availability and contractual performance, given the potential impact of any prolonged disruption on system reliability and the wider group.
The strategic importance of these assets has become increasingly evident amid rising electricity demand. While generation reserve margins remain adequate, projected growth in peak demand reinforces the need to preserve existing generation capacity and system resilience. In MARC Ratings’ view, these factors further strengthen TNB’s propensity to provide timely support, if required, resulting in greater consideration of parental support and a two-notch uplift from Southern Power’s and JEP’s standalone credit profiles.
Operational performance remained stable during the review period. Southern Power recorded no major outages, with the unplanned outage rate (UOR) for Unit 1 improving to 5.9% as at end-April 2026 from 9.3% as at end-2025. Unit 2’s UOR stood at 4.0%, within the applicable power purchase agreement (PPA) limits. The plant continued to achieve full fuel cost pass-through, with heat rates remaining below PPA thresholds following permanent gas turbine design modifications to Unit 1 in August 2024 and Unit 2 in February 2025. Under MARC Ratings’ base case, Southern Power is projected to maintain adequate cash flow generation, with average and minimum finance service cover ratios (FSCRs) of 1.92x and 1.42x, respectively. Debt-servicing capacity remains resilient under moderate stress assumptions, including a 2% increase in heat rates above PPA limits, a 2% increase in outages and a 10% rise in operating costs.
JEP also maintained stable operational performance, with Unit 1 and Unit 2 recording UORs of 0.44% and 1.90%, respectively, well within PPA limits. Fuel cost pass-through remained constrained as heat rates exceeded PPA thresholds, partly due to high-pressure heater tube leaks, while a negative fuel variance of RM12.4 million arose from the difference between the applicable coal price and actual coal costs. Unit 1 achieved compliance with PPA heat rate requirements following its major overhaul in May 2025, while Unit 2 is expected to show similar improvement following its overhaul in June 2026. MARC Ratings’ base case projects resilient cash flow generation, with minimum and average FSCRs of 1.45x and 2.25x, respectively. The projected cash flow generation remains robust under similar moderate stress scenarios.