KUALA LUMPUR: Malaysian Rating Corp Bhd (MARC) has affirmed its AAAIS rating on TNB Western Energy Bhd’s sukuk of up to RM4 billion with a stable outlook.
TNB Western Energy is the funding vehicle of parent TNB Manjung Five Sdn Bhd, a unit of Tenaga Nasional Bhd.
In a statement today, MARC said the rating and outlook were equalised with TNB’s corporate credit rating of AAA/stable on the basis of the rolling guarantee and commitment from the national utility company.
TNB has undertaken to maintain full ownership of TNB Western Energy through TNB Manjung Five which has operational proximity to the project sponsor and offtaker TNB.
TNB Manjung Five was awarded a 25-year power purchase agreement (PPA) by TNB on August 16, 2013 to design, construct, own, operate and manage a 1,000 megawatts ultra-supercritical coal-fired power plant.
The power plant was built on a reclaimed island at Manjung, Perak and it started operations on September 28, 2017.
TNB Manjung Five contracted TNB Repair & Maintenance Sdn Bhd (TNB Remaco) to operate and maintain the power plant under a 25-year operation and maintenance agreement.
MARC views the O&M provider as experienced and competent.
While the liabilities of TNB Remaco under the OMA were capped at a level which exposes TNB Manjung Five to the risk of revenue losses, MARC believes that the O&M provider was motivated to resolve issues promptly.
“Meanwhile, fuel supply risk is adequately addressed through a long-term coal supply and transportation agreement with TNB Fuel Services Sdn Bhd. The risk is further mitigated by the close proximity between TNB Manjung Five and neighbouring power plants, which allows the plants to share coal yard and jetty facilities,” MARC said.
TNB Manjung Five had received capacity revenue of RM78 million in 2017 and RM148.6 million in the first half of 2018, which were in line with the budget as the plant registered an unplanned outage rate below the PPA-specified unplanned outage limit.
However, the plant did not manage a full fuel cost pass-through as the heat rates were higher than the PPA requirements. This led to 10.9 per cent lower receipts in energy payments from the budgeted amount in 2017.
“TNB Remaco has taken remedial measures to address these issues, resulting in an improved heat rate performance in the first half of 2018.
"We will continue to monitor the heat rate performance to evaluate the impact energy payment losses would have on TNB Manjung Five’s financial profile,” MARC said.
Under the latest base case projections, the project is forecast to have minimum and average pre-distribution finance service cover ratios (FSCR) with cash of 0.76 times and 1.21 times during the sukuk tenure.
MARC noted that the projected FSCRs were lower than other MARC-rated independent power producers, signalling lower resilience to operational issues.
Based on MARC’s sensitivity analysis, the project’s cash flow coverage is susceptible to reduction in commercial papers receipts and heat rate underperformances.
“MARC expects TNB’s rolling guarantee to address any deterioration in the financial capacities of TNB Western Energy and TNB Manjung Five in meeting the sukuk repayments if any major or prolonged issue affects the power plant.
“The rolling guarantee covers scheduled semi-annual distributions on the sukuk on a non-accelerable basis. Any changes in TNB Western Energy’s rating and/or outlook would be primarily driven by a revision to TNB’s rating and/or outlook,” MARC said.