RAM Ratings reaffirms AA1 rating of Ranhill Powertron’s Islamic debt programme

Published on 14 November 2012

RAM Ratings has reaffirmed the AA1 long-term rating of Ranhill Powertron Sdn Bhd’s (“Ranhill Powertron” or “the Company”) RM540 million Islamic Medium-Term Notes (“IMTN”) Programme, with a stable outlook. Ranhill Powertron is an independent power producer that operates a 190-MW combined-cycle, gas-turbine power plant (“the Plant”) in Kota Kinabalu, Sabah, under a 21-year power-purchase agreement with Sabah Electricity Sdn Bhd.

Ranhill Powertron earned full capacity payments (“CPs”) and maintained its sound operational track record in FYE 31 December 2011 (“FY Dec 2011”). Nonetheless, there was a RM0.32 million shortfall (or about 1%) in potential CPs – a first for the Company - for January to March 2012; this was due to a lower-than-required average Equivalent Availability Factor arising from the prolonged shutdown of Block 2. The shortfall, however, had no bearing on the Company’s debt-servicing capability. Although Ranhill Powertron had also experienced a few months of higher-than-allowed heat rates following minor glitches, fuel margins in the remaining months had amply offset the additional fuel costs incurred. Moving forward, the Company is expected to continue earning full CPs and operate within its allowed heat rates as these issues have been rectified through timely remedial action. Similar to other IPPs, however, Ranhill Powertron is also exposed to regulatory and single-project risks

We note that Ranhill Powertron has adopted a more stringent formula for the computation of the Finance Service Coverage Ratios (“FSCRs”) under its financial covenants based on the Trust Deed. The stricter formula has resulted in increased cash retention for the Company, as it is not expected to achieve a pre-distribution FSCR of 2.25 times, hence curtailing all dividend distributions throughout the remaining tenure of its IMTN Programme. As a result, Ranhill Powertron’s debt-coverage levels, as measured by its FSCRs (with cash balances, post-distribution) calculated on principal repayment dates, are envisaged to strengthen substantially to a minimum of 2.42 times over the IMTN’s remaining tenure.

Given the lower FSCR as a result of the more stringent formula under its financial covenants, the Company may keep breaching its minimum required FSCR of 1.75 times (based on RAM Ratings’ sensitised cashflow projections). Nevertheless, we perceive this as more of a technicality, given Ranhill Powertron’s robust business profile and healthy debt-servicing ability. RAM Ratings will maintain close monitoring for any resolution of this technicality and also the Company’s consistency in adhering to the more onerous FSCR formula as per the trust deed.

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Lim Chern Yit

(603) 7628 1035

chernyit@ram.com.my