Published on 30 Dec 2020.
RAM Ratings has assigned a preliminary AA3/Stable rating to Tanjung Bin Energy Sdn Bhd’s (TBE) proposed RM4.5 bil Islamic MTN Programme (the Proposed Sukuk). TBE is an independent power producer (IPP) that owns and operates an ultra-supercritical 1,000 MW coal-fired power plant (the Plant) in Tanjung Bin, Johor, under a 25-year power purchase agreement (PPA) with Tenaga Nasional Berhad, expiring in March 2041.
Proceeds from the Proposed Sukuk will be utilised to repay all amounts owing by TBE to its 100%-owned turnkey contractor, Tanjung Bin Energy Issuer Berhad (TBE Issuer). TBEI had previously raised financing that comprised of a RM3.29 bil Sukuk Murabahah (the Initial Sukuk, rated AA3/Stable by RAM), a RM700 mil Term Loan and a USD400 mil Term Loan (Senior Loan Facilities) to fund the development of the Plant.
The RM3.01 bil of initial issuance proceeds will first be channelled towards the full redemption of the Initial Sukuk on a like-for-like basis vis-à-vis the sizing and maturity of each tranche. The Senior Loan Facilities are expected to be settled via a subsequent issuance. Subsequent issues under the Proposed Sukuk will be subject to certain conditions, including no adverse impact on the rating of the Proposed Sukuk following the additional drawdown.
The preliminary rating is anchored by TBE’s strong project economics that are underscored by its PPA terms. Supported by predictable availability-based capacity payments (ACPs) with no exposure to demand risk, TBE’s cashflow-generating aptitude has remained relatively stable despite some teething issues since it commenced operations in March 2016. Those problems were resolved in 2019. Although still short of the PPA’s requirements, the Plant’s rolling unscheduled outage rate of 7.01% as at end-November 2020 is a stark improvement over the 13.14% as at end-December 2018. Consequently, the quantum of revenue loss (as measured by reductions in ACPs) is lower, leading to a turnaround in its profit performance. Except in 11M 2020, TBE has been recording positive fuel margins since the commencement of its operations.
We have conservatively assumed ongoing operational hiccups until the Plant can deliver a sustainably healthy performance. Our sensitised cashflow analysis assumes – among other things – ACP reductions, higher operating and capital expenses, stressed profit rates for the Proposed Sukuk’s subsequent issuance, and optimised distribution payments. Based on this, TBE is envisaged to register strong minimum and average finance service cover ratios (FSCRs, with cash balances) of a respective 1.50 and 2.14 times throughout the tenure of the Proposed Sukuk.
TBE’s liquidity profile is further supported by standby letters of credit (SBLCs) to be procured with 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 IPPs in Peninsular Malaysia (accounting for some 22% of overall installed capacity as of February 2020). 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 in the form of equity injections.
The existing amortisation profile of TBE Issuer’s outstanding financing obligations includes three balloon repayments in 2024, 2027 and 2032 that expose TBE to refinancing risk. Given that the initial issuance of the Proposed Sukuk mirrors that of TBE Issuer’s Initial Sukuk, the balloon repayment in 2032 will be retained. Meanwhile, upon the refinancing of the Senior Loan Facilities via a subsequent issuance under the Proposed Sukuk, the balloon repayments in 2024 and 2027 are expected to be evened out under the projected amortisation profile.
In any case, the Plant’s long-term viability and residual cashflow provide room for the refinancing of the said balloon repayments. TBE’s debt-servicing ability remains anchored by its strong FSCRs (with cash balances), which also consider the assumed amortised debts for the balloon amounts at stressed refinancing rates. TBE’s financing terms have specific mechanisms to address refinancing risk in relation to the balloon repayments. These include the curtailment of shareholder distributions and the procurement of SBLCs before the balloon repayments to help maintain TBE’s liquidity.
As with other IPPs, TBE remains 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 single-generating-unit configuration, as opposed to other IPPs’ multiple units.
Chong Van Nee, CFA
(603) 3385 2482
Aw Wei Xuan
(603) 3385 2506
(603) 3385 2577
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