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RAM Ratings affirms AA2 rating of Tanjung Bin Power’s sukuk
Published on 13 Jul 2023.
RAM Ratings has affirmed the rating of Tanjung Bin Power Sdn Bhd’s (Tanjung Bin Power or the Company) RM4.5 bil Sukuk Ijarah Programme (the Sukuk) at AA2/Stable.
The rating reflects the satisfactory operating performance of the Company’s 2,100 MW coal-fired power plant (the Plant), which ensures robust cashflow and debt coverage. Tanjung Bin Power’s favourable power purchase agreement (PPA) with sole offtaker, Tenaga Nasional Berhad (TNB), supports its strong business profile. However, regulatory and single-project risks are inherent for the Company, as with other independent power producers.
In 2022, Tanjung Bin Power recorded a minor loss in available capacity payments (ACPs) (less than 1% of full-year ACPs) owing to increased forced outages that ended the Plant’s extended track record of robust operational performance since 2015. ACPs are derived from 85% of the Company’s capacity rate financial (CRF) – the cornerstone tariff that underscores its revenue. The increased outages were necessitated mainly by boiler issues. The Plant’s overall operating performance nevertheless remained satisfactory, as seen in other indicators.
The Company continued to earn extra daily utilisation payments (underpinned by the remaining 15% of its CRF) in FY 2022. Despite the limited load during certain periods caused by lofty coal prices and increased maintenance works, the bonus payments recorded in most months, driven by higher dispatch levels, have effectively offset the incurred losses. Tanjung Bin Power also successfully passed on fuel costs to TNB in fiscal 2022, having operated within the PPA’s heat rate requirements.
On the back of major overhauls in 2022 and extended planned outages in 2019, Tanjung Bin Power breached the contracted average availability target under the PPA for the recent contract-year block (2019-2022). This resulted in a minor Availability Target payment in 2023, which is not expected to dent the Company’s cash flow.
On the sukuk repayment date of 16 August 2022, the Company’s finance service coverage ratio (FSCR, with cash balances, post-distribution) stood at 3.43 times, slightly lower than our projection. This was largely attributed to a decline in cash reserves from RM1.96 bil to RM687.98 mil as at end-December 2022, given higher working capital requirements due to elevated coal prices and delayed collections in fiscal 2022. However, the anticipated moderation of coal prices is expected to restore working capital and normalise cash reserves.
Moving forward, we expect the Company to register annual FSCRs (without cash balances) of less than 1 time, indicating reliance on brought-forward cash balances to meet sukuk obligations. Tanjung Bin Power may opt to pay dividends to shareholders if it meets distribution covenants under the transaction, which include maintaining an FSCR (with cash balances) of at least 1.65 times after distribution.
The Company must also be extra mindful of its longer-term cashflow profile in determining dividends to be paid. Excessive distributions (without breaching covenants) in early years could compromise Tanjung Bin Power’s future debt service coverage. Our stressed cashflow projections (which considered lower distribution payments, among other assumptions) 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 2.39 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 2023 by RAM Rating Services Berhad
