RAM Ratings has reaffirmed the AAA/Stable rating of Tenaga Nasional Berhad's (TNB or the Group) USD500 million equivalent Murabahah MTN Programme (2005/2025), based on the Group's solid business profile as the national electricity utility company. Under RAM's methodology for government-linked entities, there is a very high likelihood of extraordinary government support for TNB in the event of financial distress, given its role that is deemed critical to the nation and the Group's very strong relationship with the Government.
With a near-monopoly on the transmission and distribution of electricity across Peninsular Malaysia and Sabah, the Group also plays a significant role as the sole off-taker of the generating capacity of and electrical energy produced by independent power producers (IPPs) in the peninsula. The Government, in addition to holding a special share, together with its various agencies, owns an aggregate 69%-stake in TNB.
Supported by a tariff hike on 1 January 2014, TNB's adjusted operating profit before depreciation, interest and tax margin had improved to 40.6% while its funds from operations cashflow debt coverage ratio ameliorated to 0.27 times for the 9-month period ending 30 November 2014. In line with the implementation of the incentive-based regulation (IBR), a tariff rebate of 2.25 sen/kWh (effective from March 2015 to June 2015) was announced in February 2015, premised on a substantial decline in coal prices. Despite this, we expect TNB's financials to remain intact as the IBR ensures stability of returns over 3-year regulatory periods and provides a fuel-cost-pass-through advantage every 6 months.
Furthermore, a delay in the announcement of the tariff rebate had led to gains arising from lower fuel costs coupled with cheaper coal currently and the Group's heavier reliance on coal generation. While sustainability remains to be seen, we maintain a positive view of the implementation of the IBR on account of increased transparency and a more structured framework for TNB's tariff reviews. This reinforces our expectation of solid and consistent government support for TNB, given its critical role.
TNB's leverage is expected to increase in tandem with the nation's ongoing initiatives to raise its power-generation capacity going forward. This will either be via an additional drawdown of debt to fund the construction of power plants, or through adjustments for additional capacity payment (CP) obligations to new IPPs. Meanwhile, TNB's adjusted gearing ratio (after considering CPs made to IPPs) had eased to 1.11 times as at end-November 2014, mainly due to augmented shareholders' funds (FY Aug 2013: 1.31 times).
Media contact
Adeline Poh
(603) 7628 1021
adeline@ram.com.my
© Press Release 2015
