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RAM Ratings reaffirms Tanjung Bin Power’s AA2 sukuk rating

Published on 27 May 2020.

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RAM Ratings has reaffirmed the AA2/Stable rating of Tanjung Bin Power Sdn Bhd’s (TBP or the Company) RM4.5 bil Sukuk Ijarah Programme (the Sukuk). The rating is underpinned by TBP's healthy operating performance that leads to satisfactory debt-coverage levels. The rating also reflects the Company’s strong business profile, backed by the favourable terms of its Power Purchase Agreement (PPA) with Tenaga Nasional Berhad (TNB), its sole off-taker. As with other independent power producers (IPPs), however, TBP is predisposed to regulatory and single-project risks.

TBP’s power plant (the Plant) has been registering healthy operational performance in the last five years, following various improvements since 2014. Correspondingly, the Plant has been operating within the PPA’s unscheduled outage limit, thus entitling TBP to full Available Capacity Payments (ACPs). Given the Plant’s lower rolling 365-day unscheduled outage rate of 2.3% as at end-2019 (end-2018: 5.1%), TBP was able to earn full ACPs in fiscal 2019 as it had operated well within the unscheduled outage limit. 

Over the years, the Company has been able to fully pass on its fuel costs to TNB (its sole off-taker). However, there were some timing differences between the fuel cost and the collection of Energy Payments from TNB in 2019. That said, the amount was insignificant and we believe that TBP will continue to pass through its fuel cost in the future, as long as it operates within the stipulated PPA heat-rate requirements.

With the commencement of principal repayments on 16 August 2019, the Company’s finance service coverage ratio (FSCR, with cash balances) came in at 3.75 times on the same date. This is lower than the 12.23 times on the repayment date of 16 August 2018. However, it still exceeds our initial forecast of 2.80 times, thanks to operational outperformance. 

Our sensitivity analysis continues to make allowances for revenue losses arising from plant outages. TBP’s debt-servicing capability is anticipated to remain intact, with projected minimum and average annual FSCRs (with cash balances) of a respective 1.65 and 3.38 times throughout the tenure of the Sukuk based on RAM’s sensitised case. In regards to its distributions to shareholders, TBP has asserted that it will adhere to the distribution covenants on a forward-looking basis throughout the tenure of the Sukuk, instead of just the year of assessment.

TBP is an IPP that owns and operates a 2,100 MW coal-fired power plant in Tanjung Bin, Johor, under a 25-year PPA with TNB that expires in September 2031.

 

Analytical contact
Timothy Goh
(603) 3385 2496
timothy@ram.com.my

Media contact
Padthma Subbiah
(603) 3385 2577
padthma@ram.com.my

 

The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.

RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.

Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.

Published by RAM Rating Services Berhad
© Copyright 2020 by RAM Rating Services Berhad



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