Find A Rating 
PRESS RELEASES
TNB’s AAA/P1 ratings intact despite plans to boost capex to accelerate sustainability agenda
Published on 19 Aug 2022.
RAM Ratings views that Tenaga Nasional Berhad’s (TNB or the Group) announcement to commit RM20 bil capital expenditure (capex) annually over the next 28 years will not at this point in time result in a review of RAM's current AAA/Stable/P1 ratings of its notes/sukuk issued (Table 1). From an environmental, social and governance perspective, we see TNB’s lead in accelerating its energy transition plan and its role as the national utility company as a catalyst for other players to step up their sustainability agendas towards realising Malaysia’s 2050 net zero target.
At the new level of capex, TNB’s revised annual capex is 89% higher than its five-year average historical level including other investment outflows and will necessitate increased borrowings. Factoring in the Group’s longer working capital cycle given soaring commodity prices, our analysis indicates its total adjusted debt will surge to RM96 bil this year (end-December 2021: RM81 bil, including exposure to 30%-owned Turkish power company, GAMA Enerji A.S.). Consequently, TNB’s projected adjusted funds from operations debt coverage and gearing could temporarily weaken to a respective 0.19 times and 1.56 times at end-FY Dec 2022 (end-FY Dec 2021: 0.25 times and 1.39 times). Potential upside from the immediate profit contribution of newly purchased operating assets, however, may improve the Group’s earnings and debt servicing ability.
Meanwhile, the potential initial public offering of wholly owned TNB Power Generation Sdn Bhd could provide better access to equity funding, enabling it to reduce debt burden. This should help moderate its leverage profile in the longer term.
The larger capex allocation will be channelled to various investments to fast-track the road to net zero. These include ongoing grid upgrades to boost renewable energy (RE) uptake, the expansion of TNB’s power generation fleet focusing on large-scale gas and hydropower plants, the acquisition of overseas RE projects and the development of a domestic electric vehicle ecosystem.
Table 1: TNB’s ratings|
Instruments |
Ratings |
|---|---|
|
AAA/Stable |
Analytical contacts
Chu Jia Ying
(603) 3385 2519
jiaying@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
