RAM Ratings reaffirms AA3 rating of Tanjung Bin Energy Issuer’s sukuk

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.

Media contact

Lee Chai Len

(603) 7628 1192

chailen@ram.com