RAM Ratings reaffirms YTL Power Generation's AA1 debt rating

Published on 14 March 2012

RAM Ratings has reaffirmed the AA1 rating of YTL Power Generation Sdn Bhd’s (“YTLPG” or “the Company”) RM1.3 billion Medium-Term Notes Programme (2003/2014) (“MTN Programme”), with a stable outlook. YTLPG, a wh
olly owned subsidiary of YTL Power International Berhad (“YTLPI”), is an independent power producer (“IPP”) that owns and operates 2 combined-cycle, gas-turbine power plants - in Paka, Terengganu (808 MW), and Pasir Gudang, Johor (404 MW).

YTLPG’s Power Purchase Agreement (“PPA”) with Tenaga Nasional Berhad guarantees the Company an income of at least RM1.1 billion, provided it delivers the minimum quantity of 7,450 GWh of electricity per year. However, we note that the amount of electricity generated in FYE 30 June 2011 (“FY June 2011”) was marginally lower than the take-or-pay minimum quantity due to curtailed gas supply. In this regard, the PPA allows YTLPG to reschedule its electricity generation by 9 months following any gas-supply interruption; the dip in sales had been compensated for by end-December 2011. Going forward, we envisage YTLPG to maintain its strong operational performance, premised on its commendable track record.

Over the next 3 years, YTLPG is projected to generate RM400 million of annual pre-financing cashflow against RM320 million of yearly debt obligations under its MTN Programme. Notably, YTLPG’s financing covenants do not prohibit additional borrowing, thus allowing it to procure and draw down RM600 million via a revolving credit (“RC”) facility in FY June 2011. Factoring in the repayment on the RC facility and given the approaching expiry of the PPA in September 2015, YTLPG’s external debt obligations will exceed its annual pre-financing cashflow in both fiscal 2013 and 2014; the Company will draw on its cash reserve to meet its due. Nevertheless, we expect parent YTLPI to step in with financial support to service YTLPG’s debt obligations, if required; we have observed similar trends in the past given that the Company is one of YTLPI’s key subsidiaries.

Looking forward, we can derive comfort from YTLPI’s healthy credit position, underscored by its robust business profile and ample liquidity. However, site concentration risk remains a key risk to YTLPG despite of it operating in 2 different locations. Similar to other IPP, YTLPG remains exposed to regulatory risks.


Media contact
Davinder Kaur Gill
(603) 7628 1118
davinder@ram.com.my