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RAM Ratings reaffirms AA2 rating of Tanjung Bin Power’s sukuk
Published on 15 Jul 2022.
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 premised on the sterling operating performance of Tanjung Bin Power’s 2,100 MW coal-fired power plant (the Plant) which underpins the Company’s robust cashflow generating ability and debt coverage levels. Also supporting the rating is the Company’s strong business profile, backed by the favourable terms of its power purchase agreement (PPA) with sole offtaker, Tenaga Nasional Berhad (TNB). Like other independent power producers, however, Tanjung Bin Power is predisposed to regulatory and single-project risks.
The Plant has delivered a healthy operational performance in the last seven years, with various improvements to the Plant since 2014. This is evident from the Plant’s ability to earn full available capacity payments (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 (UOL) of 6%.
The Plant’s rolling 365-day unscheduled outage rate remains commendable although relatively higher at 4.8% as at end-2021, against 2.6% in the preceding year. The Company continued to earn extra daily utilisation payments (underpinned by the remaining 15% of its CRF) in FY Dec 2021. Overall, bonus payments recorded in most months due to higher dispatch levels more than offset minimal losses incurred in view of a limited load during the pandemic and a spike above the PPA’s peak-hour UOL of 3.5% in November 2021.
Tanjung Bin Power was able to fully pass on fuel costs to TNB in fiscal 2021 despite operating marginally above the heat rate requirements of the PPA, owing to higher energy payments or EPs led by surging coal prices. Having said that, Tanjung Bin Power is projected 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 2022. This will result in a small Availability Target payment in 2023, 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) was a robust 4.59 times on the sukuk repayment date of 16 August 2021, slightly lower than our projection of 4.66 times. This was mainly due to higher dividend payments in FY Dec 2021 on the back of a better than expected financial performance, supported by higher EPs. Moving forward, we expect the Company to register annual FSCRs (without cash balances) of less than 1 time, indicating its reliance on brought-forward cash balances to meet sukuk obligations.
As in most project finance transactions, Tanjung Bin Power may opt to pay dividends to its shareholders if it meets distribution covenants under the transaction, which include achieving an FSCR (with cash balances) of at least 1.65 times after distribution. In determining the amount of dividends to be paid, we expect the Company to be mindful of its longer-term cashflow profile while meeting distribution covenants. Excessive distributions (without breaching covenants) in early years could compromise Tanjung Bin Power’s future debt service coverage. Our stressed cashflow projections indicate that the Company will be able to achieve respective minimum and average annual FSCRs (with cash balances, post-distribution) of 1.65 times and 2.65 times during the tenure of the Sukuk.
Analytical contacts
Zachary Tan
(603) 3385 2612
zachary@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
