Published on 12 Jun 2020.
RAM Ratings has reaffirmed the AA3/Stable rating of Tanjung Bin Energy Issuer Berhad’s (TBE Issuer) RM3.29 bil Sukuk Murabahah (the Sukuk). The reaffirmation is based on Tanjung Bin Energy Sdn Bhd’s (TBE) better-than-expected operating performance and strong cashflow-generating capability, which underscored its strong ability to service the financing obligations under the Sukuk.
TBE Issuer is the turnkey contractor for TBE’s ultra-supercritical 1,000 MW coal-fired power plant in Tanjung Bin, Johor (the Plant). TBE Issuer’s financial commitments are supported by back-to-back payments from TBE pursuant to a turnkey contract between them. Collectively known as the Group, TBE Issuer and TBE are viewed in aggregate by RAM, underpinned by the strong credit link between them.
Thanks to various improvements, the Plant demonstrated a significant turnaround in its operating and financial performance in 2019, with considerably reduced downtime. After having experienced a myriad of teething issues since it commenced operations in March 2016, the Plant’s rolling unscheduled outage rate (UOR) of 5.27% at year-end is a stark improvement relative to 13.14% a year earlier. Accordingly, the quantum of revenue loss (as measured by reductions in available capacity payments or ACPs) arising from the unscheduled outages was lower, leading to a turnaround in its pre-tax showing in fiscal 2019.
The higher ACPs earned as well as lower operating and capital expenditure led to the Group’s finance service cover ratio (FSCR, with cash balances) of 2.18 times as at 15 March 2020, i.e. higher than our projected 1.83 times. Its liquidity profile is complemented by a standby letter of credit (SBLC), which has recourse to its holding company, Malakoff Corporation Berhad. Listed on Bursa Malaysia in May 2015, Malakoff has a long-established presence and boasts the biggest portfolio of independent power producers (IPPs) in Peninsular Malaysia (accounting for some 22% of overall installed capacity). Given the Plant’s significance as Malakoff’s single largest generating unit, we believe the latter is strongly committed to TBE, as evident from its historical support for TBE in the form of equity injections.
The Group’s project fundamentals are underscored by the terms of its power purchase agreement (PPA) with Tenaga Nasional Berhad. Under our stressed scenario, the Group is envisaged to register respective minimum and average FSCRs (with cash balances) of 1.50 and 1.74 times throughout the tenure of the Sukuk. This takes into account our assumption of ACP reductions owing to unexpected downtime, higher operating expenses and optimised distribution payments.
The amortisation profile of TBE Issuer’s Senior Facilities (comprising the Sukuk as well as USD400 mil and RM700 mil of senior term loans) includes three balloon repayments in 2024, 2027 and 2032 that expose the Group to market and interest-rate risks. With nine years left under the PPA after the Sukuk’s maturity, the Plant’s long-term viability and residual cashflow provide room for the refinancing of the said balloon repayments. TBE Issuer’s debt-servicing ability remains anchored by its strong FSCRs (with cash balances), which also take into account assumed amortised debts for the balloon amounts at stressed refinancing rates. The terms of the Senior Facilities include curtailment of shareholder distributions and placement of SBLCs prior to the balloon repayments, to help retain TBE Issuer’s liquidity.
As with other IPPs, TBE and, ultimately, TBE Issuer, remain exposed to regulatory and single-project risks. Furthermore, the impact of force majeure or a major operational failure will be amplified by the Plant’s configuration of a single generating unit compared to other IPPs’ multiple units.
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Ratings on Tanjung Bin Energy Issuer Berhad