Published on 20 May 2021.
RAM Ratings has reaffirmed the AA2/Stable rating of Tanjung Bin Power Sdn Bhd’s (Tanjung Bin Power or the Company) RM4.5 bil Sukuk Ijarah Programme (the Sukuk). The rating is underpinned by Tanjung Bin Power'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 sole off-taker, Tenaga Nasional Berhad (TNB). As with other independent power producers (IPPs), however, Tanjung Bin Power is predisposed to regulatory and single-project risks.
Tanjung Bin Power’s power plant (the Plant) has been delivering a healthy operational performance in the last six years, following various improvements since 2014. This is evident from the Plant’s ability to earn full available capacity payments (ACPs, derived from 85% of its capacity rate financial (CRF) – the cornerstone tariff that underscores its revenue) by operating below the PPA’s unscheduled outage limit of 6%. The Plant’s rolling 365-day unscheduled outage rate stayed commendable at 2.6% as at end-2020 (end-2019: 2.3%). Concurrently, the Company was entitled to full daily utilisation payments or DUPs (underpinned by the remaining 15% of its CRF) as it had fulfilled the requirement of operating below the PPA’s unscheduled outage limit of 3.5% during peak hours.
Tanjung Bin Power has also been operating within the heat rate requirements of its PPA, thus enabling it to fully pass on its fuel costs to TNB. Nevertheless, Tanjung Bin Power is expected to breach the PPA’s contracted average availability target of 91% for the current contract-year block (2019-2022) due to extended planned outages in 2019 and major overhauls budgeted for 2021 and 2022. This will, however, only result in a small Availability Target payment in 2023 under our sensitised scenario, which is not expected to dent Tanjung Bin Power’s strong cashflow.
The Company’s finance service coverage ratio (FSCR, with cash balances, post-distribution) came in at a robust 3.67 times as at the Sukuk’s repayment date of 16 August 2020, slightly lower than our projected 3.84 times. This was mainly due to higher dividend payments in fiscal 2020 amid its better-than-expected operating performance and cashflow. All things considered, our cashflow projections that include various stress factors indicate that Tanjung Bin Power should achieve respective minimum and average annual FSCRs (with cash balances, post-distribution) of 1.65 and 3.38 times throughout the tenure of the Sukuk.
As with most project-finance transactions, Tanjung Bin Power can pay dividends to its shareholders if it meets a set of distribution covenants. Notably, the Company must achieve an FSCR (with cash balances) of at least 1.65 times after such payments. In determining the amount of dividends to be paid, we expect the Company to be mindful of its longer-term cashflow profile apart from meeting this covenant at the point before distribution. Excessive distributions (albeit not breaching its covenants) in the early years could compromise Tanjung Bin Power’s debt service coverage later on.
Tanjung Bin Power 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.
Aw Wei Xuan
(603) 3385 2506
(603) 3385 2577
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Ratings on Tanjung Bin Power Sdn Bhd