Published on 06 Nov 2023.
RAM Ratings has affirmed 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) based on the Company’s sustained satisfactory operational performance which should continue to support its strong cashflow generating ability. 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 two 700 MW units – Units 1 and 2), under a 25-year power purchase agreement (PPA) with Tenaga Nasional Berhad (TNB), the offtaker.
The Plant earned full Available Capacity Payments (ACPs) in 2022 as its unscheduled outage rate1 (UOR1) was below the PPA limit of 6%, but minor ACP cuts were observed in 1H 2023 due to two incidences of failure to comply with despatch capacity requirements. Although some reduction in Daily Utilisation Payments (DUPs), which is subject to demand risk, was also incurred in several months in 2022 and 1H 2023, this was fully offset by bonus DUPs earned for the rest of the periods. Having met availability targets in 2022, the Company is expected to satisfy the 91.0% threshold stipulated for the fourth contract-year block.
JEV was able to fully pass on fuel costs to TNB while operating marginally above the heat rate requirements of the PPA last year. Rising fuel prices allowed it to earn a better fuel margin due to the time lag between procurement and payment receipts from the offtaker. The inverse was demonstrated in 1H 2023 as fuel prices fell, resulting in negative fuel margins when coupled with persistent heat rate breaches at Unit 2. Margin improvement is expected as coal prices stabilise and rise again while the completed major overhaul of Unit 2 in 1H 2023 reduces heat rate losses.
Total revenue jumped to a record high of RM4.66 bil in FY Dec 2022 (FY Dec 2021: RM2.67 bil) as energy payments (EPs) reflected the increase in fuel costs during the year. This comes even as the tariff underpinning ACPs and DUPs was halved, effective 1 January 2022, as per the terms of the PPA. Both factors caused EPs, which earn much thinner margins relative to ACPs and DUPs, to represent a larger proportion of revenue, leading to a subdued operating profit before depreciation, interest and tax (OPBDIT) margin for the year. The overall impact is a much lower pre-tax profit, which was buffered by a lower financing cost for the Senior IMTN. This shift in revenue contribution was further emphasised in 1H FY Dec 2023 as negative fuel margins resulted in a pre-tax loss.
JEV’s finance service coverage ratio (FSCR, with cash balances) was 2.66 times on the Senior IMTN payment date of 12 May 2023, higher than our 2.62 times projection. Our sensitivity analysis indicates minimum FSCRs (with cash balances) of 1.50 times for the remaining tenure of the Senior IMTN, in line with the affirmed rating. Current cash balances alone are also more than sufficient to cover remaining principal and profit payments due, barring an unexpected liquidity squeeze.
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 have to contend with tighter environmental regulations in the future. Coal plants will increasingly face challenges in obtaining financing or insurance support in the long term, but comfort is derived from Chinese support for JEV by virtue of its ultimate shareholders.
(603) 3385 2486
Chong Van Nee, CFA
(603) 3385 2482
(603) 3385 2500
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Ratings on Jimah Energy Ventures Sdn Bhd