RAM Ratings has reaffirmed the AA2/Stable 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) (the Sukuk). 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, under a Power Purchase Agreement (PPA) with Tenaga Nasional Berhad (TNB) which expires on 27 September 2031.
The rating continues to reflect TBP's sturdy business profile, underscored by the favourable terms of its PPA with TNB. It is also supported by the Company's strong debt-coverage levels owing to a robust projected pre-financing cashflow.
During the review period, the Plant continued to face operational issues, primarily due to prolonged operation at maximum capacity, and compounded by the usage of inconsistent and poorer quality coal, albeit still within the PPA's specifications. As a result, TBP registered a cumulative net reduction in available capacity payments and daily utilisation payments of RM320.13 million in FY Dec 2013 (22% of total potential revenue). That said, TBP's credit metrics remained intact as its losses in FY Dec 2013 were cushioned by robust cashflow generation. Following significant remedial works in 2H 2013 and discussions with industry players to address coal quality issues, the Company represented that its operational problems are expected to be largely resolved; the Plant completed its turnaround plan on 7 March 2014 with all 3 units running at full capacity since. While we derive comfort from the track record and commitment of TBP's largest shareholder - the Malakoff Group - to the long-term ownership of its IPPs (TBP is one of its key IPPs), we will continue to closely monitor the Plant's turnaround.
Based on a stressed scenario, which includes breaches of unscheduled outage limits for certain years, TBP's credit metrics are expected to remain intact, its minimum finance service coverage ratio (FSCR) standing at 1.65 times on the back of sturdy cashflow generation and a well-matched debt repayment profile. This is despite the Company having to curtail dividends in order to maintain a debt-coverage level commensurate with the rating. In our assessment of TBP's distribution policy, the Company confirmed its intention to meet its annual obligations in respect of its subordinated debts, while dividends to shareholders would be discretionary. On this account, we expect TBP to adhere to its financial covenants throughout the Sukuk's tenure, i.e. on a forward-looking basis, as opposed to only during the year of assessment.
As with other IPPs, TBP remains exposed to regulatory and single-project risks.
Media contact
Lee Chai Len
(603) 7628 1192
chailen@ram.com.my
© Press Release 2014
