RAM reaffirms YTL Power Generation’s AA1 debt rating

Published on 18 January 2013

RAM Rating Services has reaffirmed the long-term AA1 rating of YTL Power Generation Sdn Bhd’s (“YTLPG” or “the Company”) RM1.3 billion Medium-Term Notes (“MTN”) Programme (2003/2014), with a stable outlook. YTLPG is an independent power producer and also the indirect owner of Wessex Water Services Limited – a water-and-sewerage company in the United Kingdom, following the Company’s acquisition of YTL Utilities Limited from parent YTL Power International Berhad (“YTLPI”) on 29 July 2012.

The AA1 rating reflects YTLPG’s strong business profile by virtue of its power business that is protected from demand risk by its power purchase agreement, as well as the monopolistic water-and-sewerage business that operates through a perpetual concession under a stable and transparent regulatory regime. Notably, both businesses boast commendable operating track records.

Furthermore, YTLPG is expected to generate a stable RM900 million of funds from operations annually between fiscal 2013 and 2015 (prior to the expiry of its PPA) at company level; this translates into a funds from operations debt cover (“FFODC”) ratio of around 0.17-0.20 times. Excluding the RM4.89 billion owed to YTLPI, the Company’s FFODC ratio would exceed 1.5 times. Our analysis of YTLPG’s cashflow is based on the cashflow from its power business and dividends from its self-sustaining water-and-sewerage business, to support its company-level debts.

On the other hand, YTLPG’s consolidated debt load is estimated at a hefty RM14.96 billion as at end-June 2012, which translates into a group-level gearing ratio of 4.07 times. Notably, around 61% of its group-level debt is parked under its water-and-sewerage business, which is expected to remain highly leveraged given its recurring and sizeable capital expenditure that is mostly debt-funded. Nonetheless, we understand that these debts are ring-fenced and structured on a non-recourse basis to YTLPG.

As is the case for all concession-based businesses, the power and water-and-sewerage businesses are exposed to regulatory risk.

Media contact

Michael Ti

(603) 7628 1015

michael@ram.com.my