Aug 06 2012
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MARC affirms AAIS and AAAIS(fg) ratings on Ranhill Powertron II Sdn Bhd's RM710 million IMTN Programme
The affirmed rating and stable outlook on the guaranteed notes reflect the credit strength of an unconditional and irrevocable guarantee provided by Danajamin Nasional Berhad (Danajamin) which MARC currently rates AAA/Stable. Danajamin's rating reflects its important role as Malaysia's sole financial guarantee insurer, its status as a government-sponsored entity, its solid capital base and ample liquidity.
The affirmed rating on the non-guaranteed notes reflects the overall sound operating performance of the 190-megawatt Rugading power project (the project) and satisfactory finance service coverage for the 18 months ending December 31, 2011 (18M2011). The rating takes into account the sound credit quality of Sabah Electricity Sdn Bhd (SESB), its sole offtaker, and also considers the strategic importance of the project to SESB in terms of the state's energy requirements, the adequacy of the project's natural gas supply arrangements and the transfer of fuel price risk to the offtaker. The strength of RPII's covenant package, such as the minimum finance service cover ratio (FSCR) requirement of 1.25 times (x) and maximum debt-to-equity (DE) ratio of 80:20, are also supportive of the rating.
RPII's non-guaranteed notes are secured by a pledge of revenues from the operation of the project under a 21-year take-or-pay power purchase agreement (PPA) with SESB on a pari-passu basis with the guarantee provider, Danajamin. The project has been operated principally in a combined cycle mode since April 2011 and has continued to meet prescribed performance standards for its combined cycle operations under the PPA, allowing RPII to receive full capacity payments (CPs) and attain full pass-through of fuel costs. However, both actual CPs and energy payments (EPs) for 18M2011 were lower compared to earlier financial projections by RM5.0 million and RM12.3 million respectively. The lower-than-forecast CPs and EPs were due to a one-month delay in the combined cycle commercial operation date (COD) of the project and lower dispatch demand from SESB, respectively. MARC believes the operational risks of the project are sufficiently mitigated by the plant's commercially proven technology, gas turbine contractual maintenance arrangements, the adequate performance incentives given to the project's operation and maintenance operator, Ranhill Power II O&M Sdn Bhd, and the plant's experienced operating team.
Under RPII's updated financial projections, the project's FSCR (including cash balances) averages 5.48x with a minimum of 4.07x during the remaining tenure of the IMTN programme. The rating on the non-guaranteed notes would come under pressure if the project's performance measures are not met and SESB reduces its CPs. A decline in the creditworthiness of the offtaker, an 80% subsidiary of Tenaga Nasional Berhad (TNB), would also exert pressure on the rating of the non-guaranteed notes. (MARC currently maintains a senior unsecured debt rating of AAA/Stable on TNB.)
The non-guaranteed notes will be fully amortised by June 2022, prior to the step-down in its capacity payment rates from RM36.50 per kilowatt (kW) per month to RM23.80 per kW per month from 2023 onwards. MARC anticipates that CFO will decline to a level that will make RPII reliant on the retention of excess cash flow from prior years to maintain its FSCR on the Danajamin guaranteed notes at 1.00x. Furthermore, the rating agency believes that the decline in CPs will increase RPII's susceptibility to deterioration in the project's operating performance and dividend distributions could further weaken liquidity. MARC expects the exposure of the guaranteed notes to any deterioration in RPII's credit profile to be fully mitigated by the irrevocable guarantee provided by Danajamin. Any change in the rating on the guaranteed notes will be primarily driven by a change in the financial guarantee insurer's credit strength.
Contacts: Koh Shu Yunn, +603-2082 2243/ email@example.com; Jason Kok Ching Wui, +603-2082 2258/ firstname.lastname@example.org; David Lee, +603-2082 2255/ email@example.com.
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