MARC has affirmed its ratings on Ranhill Powertron II Sdn Bhd’s (RPII) RM140.0 million outstanding Islamic Medium-Term Notes (IMTN) at AAIS and RM350.0 million outstanding guaranteed IMTN at AAAIS(fg). The outlook on the ratings is stable.
RPII owns and operates the 190-MW combined cycle gas turbine (CCGT) Rugading Power Station in Sabah under a 21-year Power Purchase Agreement (PPA) with Sabah Electricity Sdn Bhd (SESB), an 83%-owned subsidiary of Tenaga Nasional Berhad (TNB). The AAAIS(fg) rating reflects the unconditional and irrevocable Kafalah guarantee provided by Danajamin Nasional Berhad (Danajamin) on which MARC has issued an insurer financial strength rating and a long-term counterparty credit rating of AAA/stable.
The standalone AAIS rating factors in the adequate projected cash flow coverages that are underpinned by the availability-based capacity payment structure under the PPA which also allocates demand risk and fuel price risk to the offtaker, SESB. RPII’s sound plant performance to date and cash flow generation have been consistent and commensurate with the standalone rating. The stable outlook on the non-guaranteed notes reflects MARC’s expectation that RPII’s power plant will maintain its operational performance and that the company will continue to adhere to prudent financial management.
The power plant is positioned to meet the contracted average availability target (CAAT) of 94.0% in contract year block 2017-2019 given the healthy headroom provided by the actual CAAT of 97.06% in 2018. As at end-1Q2019, RPII’s annual average availability target stood at 94.08%, above the 94.0% base line. The plant’s unplanned outage rate, between 1.7% and 3.7%, has been well within the unplanned outage limit of 4.0% during the period under review. Accordingly, RPII received capacity payments of RM96.9 million in 2018 and RM23.9 million in 1Q2019, which were in line with its budget.
The company recorded higher energy payments of RM93.6 million in 2018 (2017: RM86.4 million) due to a higher electricity generation output, which increased by 15.4% y-o-y to 1,077.4GWh. The company also achieved full pass-through of natural gas and distillate costs to SESB on meeting the heat rate requirements. Nonetheless, cash flow from operations (CFO) of RM46.5 million in 2018 was lower than the previous year of RM82.9 million due to two main reasons. Firstly, RPII made a one-off advance payment of RM13.5 million to General Electric Company (GE) for fees, as part of the consideration for the renegotiated contractual service agreement. The renegotiation would enable RPII to save RM4.0 million in annual maintenance costs. The lower CFO is also partly due to a delay in receiving a payment of RM21.3 million from the offtaker, which was received in 1Q2019.
Under the base case cash flow projections, the minimum and average pre-distribution finance service cover ratios (FSCR) between 2019 and 2028 stand at 2.13x and 2.44x. MARC’s sensitivity analysis demonstrates that RPII’s FSCR remains resilient against a reduction in capacity payment or an increase in operating cost but its liquidity headroom could reduce from 2023 onwards upon the stepdown of the capacity rate financial to RM23.80/kW/month from RM36.50/kW/month. In this regard, MARC expects the company to maintain strict discipline on dividend distribution to mitigate liquidity concerns. RPII has three remaining payments under the IMTN programme expiring in June 2022. The payments under the guaranteed IMTN will begin in 2023 and end in 2029. The PPA which expires in 2031 adequately covers the tenure of the guaranteed IMTN programme.
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