Published on 08 May 2013
RAM Ratings has reaffirmed the
AAA long-term rating of Tenaga Nasional Berhad’s (“TNB” or “the Group”) USD500
million equivalent Murabahah Medium-Term Notes Programme (2005/2025); the
long-term rating has a stable outlook. Based on RAM’s methodology on government-linked
entities, there is a very high likelihood of extraordinary government support
for TNB in the event of financial distress, given the Group’s strategic role as
the national electricity company.
The rating reflects TNB’s
strategic position as the national electricity company, with a near-monopoly
over the transmission and distribution of electricity across Peninsular
Malaysia and Sabah. The Group also plays a critical role as the sole off-taker
for the generating capacity and electrical energy produced by all the
independent power producers (“IPPs”) in Peninsular Malaysia. The Group remains
a dominant player in the domestic power-generating business, controlling 53% of
Peninsular Malaysia’s generating capacity as at end-August 2012; this will increase
to around 57% when 4 of its new power plants commence operations in 2015/16.
The utility giant is viewed to
have strong government support. In addition to holding a special share, the
Government and its various agencies also own an aggregate 76%-stake in TNB.
Subsidised gas and periodic tariff reviews (in tandem with increases in the
price of natural gas) underline the implicit support received by TNB.
Meanwhile, the Government’s explicit financial support has taken the form of
cash compensation resulting from a fuel-cost-sharing mechanism where the
Government, Petroliam Nasional Berhad (“Petronas”) and TNB each bear a third of
the additional fuel costs incurred due to the industry’s gas shortage. As at
end-February 2013, the amount of fuel-cost compensation recognised was about
RM3.73 billion, with RM3.09 billion already received from the Government and
Petronas. TNB has confirmed that such compensation will be extended until the
Malacca regassification terminal commences operations and that is expected to
resolve the power sector’s gas shortage.
Nevertheless, TNB is exposed to
fuel-cost pressures given the lack of any automatic tariff revision or
fuel-cost-pass-through (“FCPT”) mechanism. The impact of such pressures is
underlined by the present curtailed supply of gas. Going forward, volatile fuel
prices will be a key challenge for the Group, as natural gas is envisaged to be
procured at market prices along with coal. In this regard, the
implementation of an automatic FCPT mechanism is crucial towards preserving the
utility giant’s financial profile. However, the timing of such implementation
remains uncertain.
TNB’s debt load is expected to
augment in tandem with Malaysia’s plant capacity. As at end-February 2013, the
Group’s debt level had increased to RM21.68 billion (end-August 2011: RM19.05
billion), following the drawdown of a RM4.85 billion facility for the expansion
of its Janamanjung plant, albeit moderated by some repayments and lighter
yen-denominated borrowing amid the strengthening of the ringgit against the
yen. Nonetheless, the recognition of alternate-fuel-cost compensation had
boosted accumulated profits, easing the Group’s adjusted gearing ratio to 1.54
times as at end-February 2013 (end-August 2011: 1.65 times). Moving forward, as
the nation raises its power-generation capacity, TNB’s leverage is envisaged to
increase, either via additional debt drawdown if it wins the bids, or through
adjustments for additional future capacity-payment obligations to the new IPPs.
Media contact
Chin Wynn
(603) 7628 1170
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