Published on 10 Nov 2022.
RAM Ratings has reaffirmed the AA3/Stable rating of Jimah Energy Ventures Sdn Bhd’s (JEV or the Company) RM4.85 bil Senior Islamic Medium-Term Notes (IMTN) Facility (2005/2025).
The reaffirmation is premised on the Company’s sustained satisfactory operational performance and strong cashflow generation. JEV is an independent power producer (IPP) that owns and operates a 1,400 MW coal-fired power plant in Port Dickson, Negeri Sembilan (the Plant, comprising Unit 1 and Unit 2 – 700 MW each), under a 25-year Power Purchase Agreement (PPA) with Tenaga Nasional Berhad (TNB), the offtaker.
In 2021, the Plant continued to earn full Available Capacity Payments (ACPs) as its unscheduled outage rate1 (UOR1) was below the PPA limit of 6%. The peak-hour UOR2 surged above the permissible limit of 3.5% due to several incidents from May to July 2021, resulting in minor Daily Utilisation Payment (DUP) reductions. These were more than offset by bonus payments earned for the rest of the year. UOR2 improved in 7M 2022, enabling JEV to earn full DUPs in addition to full ACPs. The Company’s average availability target (AT) for its third contract-year block was shy of the 91.0% threshold as a result of a several rectification overhauls in 2018 and a major overhaul in 2020. The AT penalty levied was immaterial at less than 0.1% of the Company’s annual turnover.
Despite operating marginally above the heat rate requirements of the PPA in certain months, JEV was able to fully pass on fuel costs to TNB in 2021. Rising fuel prices allowed the Company to earn a better fuel margin due to the time lag between procurement and the receipt of payment from the offtaker. As coal prices continued to escalate in 2022, JEV’s fuel margin remained positive in 7M 2022. Heat rate breaches was observed in Unit 2 and the root cause of the breach is expected to be resolved during a major overhaul of the unit, scheduled for 1Q 2023.
The Company’s net profit rose to RM475 mil in FY Dec 2021 (FY Dec 2020: RM337 mil) after a successful tax management exercise lowered tax expenses. However, its OPBDIT margin deteriorated in the same period and is anticipated to narrow further in fiscal 2022, given that the tariff underpinning its ACPs and DUPs was halved effective 1 January 2022 as per the terms of the PPA. The impact on JEV’s bottom line will be netted off by a significantly lower financing cost on the Senior IMTN, of which only RM350 mil remains outstanding.
As at the Senior IMTN repayment date of 12 May 2022, JEV’s finance service coverage ratio (FSCR, with cash balances) stood at 3.64 times, exceeding our previous expectation of 2.44 times, largely owing to the Plant’s operational outperformance against our sensitised assumptions. Looking ahead, our sensitivity analysis expects minimum and average annual FSCRs (with cash balances) to be a respective 1.50 times and 2.35 times throughout the remaining tenure of the Senior IMTN. Without considering cash balances, JEV’s FSCR will stay above 1.0 time, underscoring its strong annual cashflow generation and debt servicing capability.
Like other IPPs, JEV remains exposed to regulatory and single-project risks. As coal-fired power plants are the focal point of the government’s carbon reduction policies, the Company may also be exposed to tighter environmental regulations in the future. Coal plants will increasingly face challenges in obtaining financing or insurance support in the long term.
L Nurisya Abdullah
(603) 3385 2492
Chong Van Nee, CFA
(603) 3385 2482
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Ratings on Jimah Energy Ventures Sdn Bhd