RAM Ratings affirms Tanjung Bin Power’s AA2 sukuk rating

Published on 01 Jul 2024.

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RAM Ratings has affirmed the AA2/Stable rating for Tanjung Bin Power Sdn Bhd’s (Tanjung Bin Power or the Company) RM4.5 bil Sukuk Ijarah Programme (the Sukuk). 

The rating reflects Tanjung Bin Power’s robust operating performance of its 2,100 MW coal-fired power plant (the Plant), which ensures healthy cashflow and debt coverage. The Company’s favourable power purchase agreement (PPA) with sole offtaker, Tenaga Nasional Berhad (TNB), supports its strong business profile. Like many other independent power producers (IPPs) however, the Company faces inherent regulatory and single-project risks. 

In 2023, Tanjung Bin Power delivered a solid operating performance, earning full available capacity payments (ACPs) as it operated below PPA unscheduled outage limit thresholds of 6% and 8%. Its ACPs are derived from 85% of the Company’s capacity rate financial (CRF), the tariff rate that underscores its revenue profile. 

Although the Company faces some demand risk due to the daily utilisation payments (underpinned by the remaining 15% of CRF), stronger electricity sales in the second half of 2023 enabled it to earn full payments with bonuses for the year. With the sharp decline in coal prices, Tanjung Bin Power was unable to fully pass on fuel costs to TNB in fiscal 2023 despite operating within heat rate requirements under the PPA. 

On the sukuk repayment date of 16 August 2023, the Company’s finance service coverage ratio (FSCR, with cash balances, post-distribution) of 2.10 times remained robust, albeit below our earlier projected 2.64 times. This ratio was weighed down by considerable upfront spending on fuel procurement against lower fuel payments earned, in addition to higher-than-expected shareholders distribution. Consequently, cash reserves declined from the three-year average of RM2.16 bil (2019-2021) to RM666.98 mil as at end-December 2023. The fiscal year also saw Tanjung Bin Power record its first pre-tax loss due to substantial negative fuel margins from plunging coal prices, an industry-wide challenge for coal IPPs. 

Looking ahead, Tanjung Bin Power’s annual FSCRs (without cash balances) are expected to consistently remain below 1 time for the remaining tenure of the Sukuk, emphasising the Company’s dependence on its cash balances to meet sukuk obligations. RAM’s stressed cashflow projections, which considered lower distributions among other variables, indicate that the Company can maintain minimum and average annual FSCRs (with cash balances, post-distribution) of 1.65 times and 2.05 times, respectively, throughout the Sukuk’s tenure, supportive of its AA2 rating. 

In that regard, we continue to monitor the Company’s dividend distributions to its 90% shareholder, Malakoff Corporation Berhad. While distributions are contingent on the Company meeting specific distribution covenants, maintaining or increasing them beyond current levels may deplete cash reserves and impact Tanjung Bin Power’s future debt coverage, potentially affecting the Sukuk’s rating. 


Analytical contacts
Zachary Tan
(603) 3385 2612

Chong Van Nee, CFA
(603) 3385 2482

Media contact
Sakinah Arifin
(603) 3385 2500


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
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