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RAM Ratings affirms AA3 rating of Tanjung Bin Energy’s RM4.5 bil sukuk
Published on 27 Jul 2023.
RAM Ratings has affirmed the AA3/Stable rating of Tanjung Bin Energy Sdn Bhd’s (TBE or the Company) RM4.5 bil Islamic MTN Programme (2021/2041) (the Sukuk).
TBE’s debt servicing ability is expected to stay strong despite operational issues at its 1,000 MW ultra-supercritical coal-fired power plant in Tanjung Bin, Johor (the Plant). The rating will remain supported by standby letters of credit (SBLCs) procured by the Company’s sole shareholder, Malakoff Corporation Berhad (Malakoff), to fulfil minimum required balances in the transaction Finance Service Reserve Account and Maintenance Reserve Account. TBE is an independent power producer (IPP) that owns and operates the Plant under a 25-year power purchase agreement with Tenaga Nasional Berhad, which expires in March 2041.
Lengthy forced outages at the Plant due to damaged turbine blades led to elevated rolling unscheduled rates throughout 2022. This resulted in hefty available capacity payment (ACP) losses of RM151 mil in FY Dec 2022 (FY Dec 2021: RM84.2 mil). The damaged turbine blades were repaired or replaced during an outage in late 2022. Given the Plant’s volatile operating history, we have incorporated ACP and fuel losses, availability target payments, and higher operating and capital expenses into our projections to cater for unexpected operational hiccups. Even with these assumptions, TBE is still expected to register strong minimum and average finance service coverage ratios (with cash balances, post distribution) of 1.50 times and 1.65 times, respectively, throughout the remaining tenure of the Sukuk.
The Company’s cash and bank balances stood at RM282 mil as at end-May 2023, lower than the average closing balances at every financial year end between 2019 and 2021 (RM659 mil). This is caused by timing variance in payment collection from TNB and the Company’s coal purchase billing.
A scheduled balloon repayment of RM650 mil under the sukuk programme in 2032 exposes TBE to refinancing risk. However, the Plant’s long-term viability and residual cash flow are anticipated to provide ample room for a refinancing exercise closer to the repayment date. Our analysis takes into account an assumed amortised debt repayment profile of the balloon repayment at stressed refinancing rates. We are also cognisant that access to funding for coal-fired power plants may be challenging in view of climate-related concerns which have seen more institutional investors and financial institutions pivoting away from or reducing exposure to carbon-intensive sectors. Should a refinancing exercise fail to materialise for the 2032 balloon repayment, TBE’s liquidity profile will be supported by SBLCs to be procured with recourse to its holding company, Malakoff. To preserve TBE’s liquidity, the terms of the Sukuk include the curtailment of shareholder distributions and the procurement of SBLCs prior to the balloon repayment.
Listed on Bursa Malaysia in May 2015, Malakoff has a long-established presence in the power sector, boasting the biggest portfolio of IPPs in Peninsular Malaysia. We believe Malakoff is strongly committed to TBE, as seen in equity injections in the past. Malakoff’s sound business profile and more diversified power business will be key considerations for financial institutions in the provision and renewal of SBLCs in the future.
Like other IPPs, TBE faces regulatory and single-project risks. The impact of a force majeure or major operational failure will be amplified in view of the Plant’s single generating unit. The Company maintains a comprehensive array of insurance policies but these may not fully compensate it for financial losses from such an event on a timely basis.
Analytical contacts
Lee Jo Yee
(603) 3385 2583
joyee@ram.com.my
Chong Van Nee, CFA
(603) 3385 2482
vannee@ram.com.my
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Published by RAM Rating Services Berhad
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