RAM Ratings has reaffirmed the AA2 long-term rating of Tanjung Bin Power Sdn Bhd's ("TBP" or "the Company") Sukuk Ijarah Programme of up to RM4.5 billion in nominal value (2012/2029) ("sukuk"), with a stable outlook. TBP is an independent power producer ("IPP") that has been granted the right to construct, own and operate a 2,100-MW coal-fired power plant ("the Plant") in Tanjung Bin, Johor, for 25 years, under a Power Purchase Agreement ("PPA") with Tenaga Nasional Berhad ("TNB") which expires on 27 September 2031.
The rating reflects TBP's sturdy business profile, underscored by the favourable terms of its PPA with TNB. It is also supported by the Company's robust debt-coverage levels on the back of a projected pre-financing cashflow of around RM1 billion annually between FY Dec 2013 and FY Dec 2019, which will taper to an average of around RM390 million up to fiscal 2029 (when the tariff is reduced as per the terms of the PPA). This is envisaged to translate into a finance service coverage ratio (with cash balances, post-distribution, calculated on principal repayment dates) of at least 1.65 times. In arriving at our projections, we have assumed that TBP will adhere to its financial covenants throughout the tenure of the sukuk on a forward-looking basis, as opposed to only during the year of assessment.
The Plant operated at maximum capacity for most of fiscal 2012 as a result of TNB's heavy reliance on coal-fired plants amid the gas-curtailment situation. Owing to the Plant's prolonged operation at maximum capacity, TBP encountered increased unscheduled outages to the extent of breaching the unscheduled outage limits ("UOL") of 6% and 8% in the PPA. Nevertheless, the Company suffered only a minor net reduction in revenue of RM31.88 million (about 2.2% of potential revenue). Looking ahead, RAM's sensitised cashflow projections assume breaches of UOL for certain years, amongst others, during the remaining tenure of the sukuk. As represented by management, we would expect TBP to curtail distributions to its shareholders in such a scenario in order to maintain its current debt-coverage level.
As with other IPPs, TBP remains exposed to regulatory and single-project risks.
Media contact
Jocelyn Chiang
(603) 7628 1124
jocelyn@ram.com.my
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