RAM Ratings reaffirms AA3 rating of Jimah Energy Ventures’ Islamic debt facility

Published on 30 November 2012

RAM Ratings has reaffirmed the AA3 long-term rating of Jimah Energy Ventures Sdn Bhd’s (“JEV” or “the IPP”) RM4.85 billion Senior Islamic Medium-Term Notes Facility (2005/2025) (“Senior IMTN”) with a stable outlook. JEV is an independent power producer (“IPP”) that owns and operates a 1,400-MW coal-fired power plant (“the Plant”) in Port Dickson, Negeri Sembilan, under a 25-year Power Purchase Agreement (“PPA”) with Tenaga Nasional Berhad (“TNB”).

The reaffirmed rating is premised on JEV’s strong business profile, underscored by the favourable terms of its PPA with TNB. We derive further comfort from the sturdy credit profile of its sole off-taker, TNB, whose debt facility is rated AAA by RAM Ratings, with a stable outlook. The IPP also has a strong debt-servicing ability; its annual pre-financing cashflow is expected to sufficiently support its obligations under the Senior IMTN, as reflected by its projected finance service coverage ratio (“FSCR”) (without cash balances) of at least 1.17 times on payment dates. That said, JEV’s higher-than-expected capital spending, totalling RM74 million in FY Dec 2012, has slightly reduced its cash buffer. Nonetheless, the IPP is expected to maintain a healthy FSCR (with cash balances, post-distribution) of above 1.31 times throughout the tenure of the Senior IMTN, given the “loss-absorption” features of its RM895 million Junior Debt (2005/2034) (“Junior Debt”, not rated), which is subordinated to the Senior IMTN.

Reductions in JEV’s pre-financing cashflow will be cushioned by corresponding reductions in its distributions to the Junior Debt holder – Special Power Vehicle Berhad (“SPV”) – which the transaction structure allows. In assessing JEV’s ongoing distributions to SPV, our sensitised projections assume that the IPP will adhere to its financial covenants on a forward-looking basis, as opposed to only during the year of assessment.

Meanwhile, JEV has experienced some operational hiccups since 2H FY Dec 2011, mainly attributable to accelerated wear and tear owing to the Plant’s high load factor since late-2010. Nonetheless, we expect this to have no impact on JEV’s financials as the IPP will be compensated to the extent of RM70 million per year for any reduced revenue or liquidated damages incurred as a result of a failure to achieve performance requirements under the PPA. These terms are stipulated in JEV’s Operations and Maintenance Agreement with its operations and maintenance operator – the consortium of Jimah O&M Sdn Bhd and Jimah Teknik Sdn Bhd.

In addition, as with other IPPs, JEV remains exposed to regulatory and single-project risks.

Media contact

Anne Yap

(603) 7628 1038

anne@ram.com.my