RAM Ratings reaffirms Prai Power’s AA3 rating

Published on 13 June 2012

RAM Ratings has reaffirmed the AA3 rating of Prai Power Sdn Bhd’s (“Prai Power” or “the Company”) RM780 million Al-Istisna’ Fixed-Rate Serial Bonds (“the Bonds”), with a stable outlook. Prai Power is an independent power plant (“IPP”) that owns and operates a 350-MW combined-cycle, gas-turbine power plant in Prai, Penang (“the Plant”).

The rating remains supported by Prai Power’s sturdy business profile, underscored by the favourable terms of its power purchase agreement with Tenaga Nasional Berhad (“TNB”). In fiscal 2011, the Company was able to claim 95.9% of its available capacity payments (“ACPs”) and fully pass through its fuel costs to TNB. On the other hand, Prai Power’s robust debt-servicing ability is reflected by its projected annual pre-financing cashflow of RM85 million-RM120 million, translating into a minimum finance service coverage ratio of 1.50 times (with cash balances, post-distribution) on its principal repayment dates. Our sensitised cashflow assumes that Prai Power will adhere to its financial covenants throughout the Bonds’ tenure (i.e. on a forward-looking basis as opposed to only the current year).

Meanwhile, the single-shaft design of the Plant is an inherent technological constraint for the Company, as the entire facility must be shut down should there be any disruption to any component attached to the generator. This had contributed to the Plant’s volatile operations in the past. In fiscal 2011, Prai Power suffered RM5.1 million of net penalties and reductions in ACPs as a result of higher-than-permitted scheduled and unscheduled outages. Nonetheless, the revenue loss only comprised 1.6% of the IPP’s revenue for the year and is within the range of our sensitised case. Going forward, we have assumed breaches of both outage limits in Prai Power’s projected cashflow in certain years, causing some ACP losses and penalties.

Similar to all other IPPs, the rating remains moderated by regulatory and single-project risks.

Media contact
Jocelyn Chiang
(603) 7628 1124
jocelyn@ram.com.my