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RAM Ratings reaffirms Manjung Island Energy’s sukuk ratings

Published on 27 Jan 2022.

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RAM Ratings has reaffirmed the AAA/Stable rating of Manjung Island Energy Berhad’s (MIEB) RM3.86 bil Islamic Securities (2011/2030) (Series 1) as well as the enhanced AAA(s)/Stable rating of its RM990 mil Islamic Securities (2011/2031) (Series 2). 

The rating of Series 1 is premised on our expectation that debt coverage for the series will remain superior despite operational issues encountered by TNB Janamanjung Sdn Bhd (TNBJ or the Company), MIEB’s sole source of cash flow. The enhanced rating of Series 2 reflects an irrevocable and unconditional guarantee from TNBJ’s ultimate parent, Tenaga Nasional Berhad (TNB, rated AAA/Stable by RAM).

MIEB, a trust-owned special-purpose vehicle, was established to raise funding for the construction of a 1,010 MW coal-fired power plant (GF2) next to the existing 2,070 MW coal-fired Sultan Azlan Shah power plant in Perak (GF1) (collectively, the Plant). Recognising the strong credit link between MIEB and TNBJ, RAM views both companies in aggregate. 

The Company boasts a strong business profile, backed by the terms of its Power Purchase Agreements (PPAs) with TNB for GF1 and GF2. The Company is entitled to full available capacity payments (ACPs) subject to operating within the parameters of the PPAs – irrespective of the quantum of electricity generated – as well as energy payments (EPs) via a fuel cost pass-through mechanism.

The Plant’s operational performance remains volatile largely due to recurring boiler tube leaks, with rectification actions taken. While GF1 registered an improved performance, as seen in its lower rolling unscheduled outage rate (UOR) of 5.5% as at end-August 2021 (end-December 2020: 6.9%), GF2’s performance deteriorated, its rolling UOR reaching a high of 13.3% as at the same date (end-December 2020: 8.8%). As TNBJ’s PPAs require the Plant to operate within a UOR of not more than 6%, the Plant continued to incur hefty ACP losses of RM107.2 mil in 8M FY Dec 2021 (3-year average: RM137.3 mil). Accordingly, our sensitised analysis maintains the assumption of some underperformance.

RAM’s sensitised cashflow projections indicate that TNBJ will still be able to register respective minimum and average annual finance service coverage ratios of 2.0 times and 5.4 times (with cash balances, post-distribution) for the remaining tenure of Series 1. The Company’s debt coverage on Series 1’s obligations and Series 2’s profit obligations remains solid, supported by a well-matched debt repayment profile, comfortable cash holdings and the stringent covenants of Series 1. TNBJ will continue to exercise caution with respect to future distributions to preserve debt coverage. 

Series 2 was structured with a RM990 mil bullet principal repayment, due on 25 November 2031. TNBJ is anticipated to be able to meet this obligation with cash balances built up to meet repayments of Series 2. Series 2’s profit payments, meanwhile, rank equally with Series 1’s in terms of cash distributions during the tenure of the latter.

Like other independent power producers, TNBJ is exposed to force majeure and regulatory risks. The Company maintains a comprehensive array of insurance policies but these may not fully compensate it for financial losses arising from force majeure. However, GF1 and GF2 are unlikely to face operational failure simultaneously, mitigating the force majeure risk. As an essential service provider, TNBJ’s operations have stayed largely unaffected by movement restrictions during the Covid-19 pandemic.

 

Analytical contacts
Lee Jo Yee
(603) 3385 2583
joyee@ram.com.my

Chong Van Nee, CFA
(603) 3385 2482
vannee@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 2022 by RAM Rating Services Berhad



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