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Wednesday, May 29, 2013
Published on 23 May 2013
RAM Ratings has reaffirmed the AA3 long-term rating of Tanjung Bin Energy Issuer Berhad’s (“TBE Issuer”) RM3.29 billion Sukuk Murabahah (“the Sukuk”) with a stable outlook.
TBE Issuer – a wholly-owned subsidiary of Tanjung Bin Energy Sdn Bhd (“TBE” or “the IPP”) (both companies are collectively known as “the Group”) – is the turnkey contractor that will develop, construct and finance TBE’s super-critical 1,000-MW coal-fired power plant (“the Plant”) in Tanjung Bin, Johor. TBE Issuer’s financial commitments in respect of the Sukuk will be supported by back-to-back payments from the IPP. In this regard, we recognise the strong credit link between these entities and view both companies in aggregate from a credit standpoint.
The construction of the Plant was 26% complete as at end-February 2013, behind the scheduled 28% as a result of minor setbacks. Nonetheless, given the available lead time and measures taken to mitigate the effects of the delay, TBE Issuer should be able to make up lost time. Given RAM’s cashflow assessment assumes cost overruns of 5.4% (as opposed to the Project’s contingency sum of 2.5%), the Group’s credit profile is expected to hold up. We further derive comfort from the long-standing presence and track record of TBE’s sponsor – Malakoff Corporation Berhad – which we believe will be strongly committed to seeing the Project through to its completion, supported by its long-term ownership of its current IPPs.
The rating reflects TBE’s sturdy project fundamentals, underscored by the favourable terms of its Power Purchase Agreement (“PPA”) with Tenaga Nasional Berhad, the sole off-taker. At the same time, the Group is envisaged to possess a strong debt-servicing aptitude, with a minimum finance service coverage ratio on payment dates (with cash balances, post-distribution) of 1.50 times. This is supported by its projected average annual pre-financing cashflow of RM580 million and our assumption that the Group will be able to continuously procure the required standby letter of credit to fund TBE Issuer’s Finance Service Reserve Account. In arriving at the projections, we have assumed that the Group will adhere to its financial covenants throughout the tenure of the Sukuk on a forward-looking basis, rather than only in the year of assessment.
The amortisation profile of TBE Issuer’s Senior Facilities exposes the Group to potential changes in financial guidelines, and market, interest-rate and credit-spread risks. In this regard, the Single Counterparty Exposure Limit policy published by Bank Negara Malaysia may heighten the Group’s refinancing risk although we note the project’s cashflow for the remaining tenure of the PPA is sufficient to cover its total outstanding debt at each point of refinancing.
As with other IPPs, the Group is exposed to regulatory and single-project risks.
Lee Chai Len
(603) 7628 1192
Published on 23 May 2013
RAM Ratings has reaffirmed the AA2 long-term rating of Tanjung Bin Power Sdn Bhd’s (“TBP” or “the Company”) Sukuk Ijarah Programme of up to RM4.5 billion in nominal value (2012/2029) (“sukuk”), with a stable outlook. TBP is an independent power producer (“IPP”) that has been granted the right to construct, own and operate a 2,100-MW coal-fired power plant (“the Plant”) in Tanjung Bin, Johor, for 25 years, under a Power Purchase Agreement (“PPA”) with Tenaga Nasional Berhad (“TNB”) which expires on 27 September 2031.
The rating reflects TBP’s sturdy business profile, underscored by the favourable terms of its PPA with TNB. It is also supported by the Company’s robust debt-coverage levels on the back of a projected pre-financing cashflow of around RM1 billion annually between FY Dec 2013 and FY Dec 2019, which will taper to an average of around RM390 million up to fiscal 2029 (when the tariff is reduced as per the terms of the PPA). This is envisaged to translate into a finance service coverage ratio (with cash balances, post-distribution, calculated on principal repayment dates) of at least 1.65 times. In arriving at our projections, we have assumed that TBP will adhere to its financial covenants throughout the tenure of the sukuk on a forward-looking basis, as opposed to only during the year of assessment.
The Plant operated at maximum capacity for most of fiscal 2012 as a result of TNB’s heavy reliance on coal-fired plants amid the gas-curtailment situation. Owing to the Plant’s prolonged operation at maximum capacity, TBP encountered increased unscheduled outages to the extent of breaching the unscheduled outage limits (“UOL”) of 6% and 8% in the PPA. Nevertheless, the Company suffered only a minor net reduction in revenue of RM31.88 million (about 2.2% of potential revenue). Looking ahead, RAM’s sensitised cashflow projections assume breaches of UOL for certain years, amongst others, during the remaining tenure of the sukuk. As represented by management, we would expect TBP to curtail distributions to its shareholders in such a scenario in order to maintain its current debt-coverage level.
As with other IPPs, TBP remains exposed to regulatory and single-project risks.
(603) 7628 1124
May 22, 2013 -
MARC has affirmed its MARC-1ID/AAAID ratings on Sime Darby Berhad’s (Sime Darby) RM4.5 billion Islamic Medium Term Notes Programme (IMTN Programme) and RM500 million Islamic Commercial Papers (ICP) with a combined limit of RM4.5 billion (ICP/IMTN Programme). The outlook of the ratings is stable. The rating of MARC-1ID on the RM150 million Underwritten Murabahah Commercial Papers Facility has been withdrawn upon the expiry and cancellation of the facility.
The affirmed ratings reflect the group’s well-diversified business profile across businesses and geographies; the steady operating track record of its core business segments of plantation, industrial, motors and property; and strong financial flexibility. Sime Darby’s performance, however, remains susceptible to commodity price volatility, in particular crude palm oil (CPO) prices, and industry cyclicality that could be further compounded by the challenging economic conditions in some of the major markets in which the group operates.
Sime Darby’s plantation division, which is one of the group’s six main business divisions, has remained the largest contributor to its operating profit, generating 50% of the total for the half-year ended December 31, 2012 (1HFY2013) (1HFY2012: 59%). The plantation division has over 519,000 ha of cultivated oil palm acreage and is one of the world’s largest producers of CPO, contributing 6% of the global output annually. With 61% of the total cultivated areas in the prime maturity range, MARC opines that the division’s performance will be underpinned by steady fresh fruit bunch production. Notwithstanding this, the weak CPO price trend will continue to weigh on the division’s near-term performance. For 1HFY2013, the lower average CPO price of RM2,432/MT (FY2012: RM2,925/MT; 1HFY2012: RM2,872/MT) was largely responsible for the sharp decline in operating profit to RM1,187 million (1HFY2012: RM1,849 million). MARC believes that recovery in the near-term prospects for the palm oil segment would be driven by the pace of palm oil inventory reduction and improvement in global economic conditions.
MARC observes that the group’s industrial and motors division have somewhat compensated for the weaker performance of the plantation division. For 1HFY2013, the industrial and motors divisions recorded operating profit of RM659 million (1HFY2012: RM616 million) and RM320 million (1HFY2012: RM304 million) respectively. However, going forward, the performance of the motors division will be governed by the intense competition in the Chinese automotive market, among other factors, while the industrial division will depend on the rebound in mining activities in the Australasia region. MARC notes the weakening performance of the property division, which recorded a lower operating profit of RM110 million in 1HFY2013 (1HFY2012: RM179 million), is due to fewer launches undertaken by the division amid the moderating trend in the domestic property market. The division’s major overseas project, the Battersea power station redevelopment in London, UK, has since seen strong take-up rates for the first phase launched in January 2013. Nonetheless, the RM40 billion Battersea project, in which Sime Darby has a 40% stake, could expose the division to project execution risk, which is mitigated to a certain extent by the longstanding experience of the key project sponsors. Meanwhile, the performance of the energy and utilities division, which registered an operating profit of RM127 million in 1HFY2013, recorded lower throughput at its China ports and higher overhead costs.
On a consolidated basis, group revenue grew by 3.2% to RM23.2 billion for 1HFY2013 from the previous corresponding period, while pre-tax profit declined sharply by 25.5% to RM2.3 billion between the same periods. For FY2012, the group’s free cash flow (FCF) was negative RM773 million (FY2011: surplus of RM1.4 billion). Group borrowings have continued to increase to fund its acquisitions and capital expenditure spending; total borrowings stood at RM11.5 billion as at December 31, 2012 (end-June 2012: RM9.8 billion). As a result, the group debt-to-equity (DE) ratio rose to 0.43 times from 0.36 times. Assuming full drawdown on the US$1.5 billion multi-currency sukuk programme which was set up in January 2013, group DE would increase to 0.60 times.
At Sime Darby’s holding company level, revenue consisted solely of dividends from its subsidiaries, of which the plantation division remains the main contributor, accounting for 60% of RM2.7 billion dividends upstreamed in FY2012 (FY2011: RM2.0 billion). While the prevailing difficult operating environment of several of its divisions could hamper the quantum of dividend flow from subsidiaries in the near term, MARC expects the plantation division to continue to be the major dividend contributor. Borrowings at the holding company level increased to RM3.4 billion as at end-FY2012 (FY2011: RM3.2 billion), of which 79% or RM2.7 billion consisted of borrowings under the rated facility, but the DE ratio remained low at 0.26 times due to the 6% increase in shareholders’ funds. MARC also considers the liquidity and financial flexibility at the company level to be strong as reflected by cash and cash equivalents of RM315 million and the unutilised amount under the rated ICP/IMTN programme of RM2.0 billion against short-term borrowings of RM1.7 billion as at June 30, 2012.
The stable outlook reflects MARC’s expectations that Sime Darby’s credit metrics will remain commensurate with its current ratings.
Nisha Fernandez, +603-2082 2269/ email@example.com;
Ngiam Tee Wei, +603-2082 2268/ firstname.lastname@example.org;
Rajan Paramesran, +603-2082 2233/ email@example.com.