RAM Ratings reaffirms AA3 rating of Prai Power’s bonds

Published on 24 June 2013

RAM Ratings has reaffirmed the AA3 long-term rating of Prai Power Sdn Bhd’s (“Prai Power”) RM780 million Al-Istisna’ Fixed-Rate Serial Bonds (“the Bonds”); the long-term rating has a stable outlook. Prai Power is an independent power producer (“IPP”) that owns and operates a 350-MW combined-cycle, gas-turbine power plant in Prai, Penang (“the Plant”). 

The rating remains supported by Prai Power’s sturdy business profile, underscored by the favourable terms of its power purchase agreement with Tenaga Nasional Berhad (“TNB”). In 2012, the IPP delivered a commendable operating performance enabling the IPP to claim 99.9% of its available capacity payments (“ACPs”) and fully pass through its fuel costs to TNB. If not for the high unscheduled outage rate (“UOR”) in 2011 that had been brought forward to 2012, the IPP would have suffered no loss in ACPs.

As per our expectations, Prai Power achieved a finance service cover ratio (“FSCR”) of 1.55 times (with cash balances, post distribution) as at its last principal repayment date of 26 February 2013, underscored by a healthy cash pile of RM48 million. Based on RAM’s sensitised cashflow projections, the IPP is expected to generate between RM96 million and RM114 million of annual pre-financing cashflow, translating into a minimum FSCR of 1.50 times (with cash balances, post distribution and calculated on its principal repayment date). As represented by the management, we expect Prai Power to curtail distributions to its shareholders should the need arise, to maintain its current debt-coverage levels. Given this, we have assumed that it will optimise annual distributions, subject to meeting the requirements of its finance service reserve account (“FSRA”), a post-distribution FSCR of 1.50 times, and a 4:1 debt-to-equity ratio at all times.

Although the Plant’s operations have improved markedly in terms of its UOR, we remain cognisant of its vulnerability to breakdowns – as has happened in the past – due to the utilisation of a single-shaft system that could completely shut down the entire facility should any component attached to the generator be disrupted. Similar to all other IPPs, Prai Power is also exposed to regulatory and single-project risks.

Media contact

Cheryl Yong

(603) 7628 1072

cheryl@ram.com.my