RAM Ratings reaffirms AA1 rating of GB3’s Islamic debt securities

Published on 10 July 2013

RAM Ratings has reaffirmed the long-term AA1 rating of GB3 Sdn Bhd’s (“GB3” or “the Company”) RM850 million Senior Secured Al-Bai Bithaman Ajil Bond Facility (“ABBA Bonds”), with a stable outlook. GB3 is an independent power producer (“IPP”) operating a 640-MW combined-cycle, gas-turbine power plant in Lumut, Perak.

The rating is supported by GB3’s strong business profile, underscored by the favourable terms of its Power Purchase Agreement (“PPA”) with Tenaga Nasional Berhad (“TNB”), satisfactory operating record and healthy cashflow that supports its debt-servicing ability. Similar to all other IPPs, the rating is moderated by inherent regulatory and single-project risks.

For the period under review, GB3 delivered a satisfactory operational performance and was able to earn full available capacity payments (“ACPs”). GB3 also managed to fully pass-through its fuel costs to TNB after having met all the requirements set out in the PPA. Notably, GB3 has been minimally despatched since March 2013, immediately following a tariff reduction for its sister company, Segari Energy Ventures Sdn Bhd (“SEV”, a plant located next to GB3). This follows the completion of the Energy Commission’s renegotiation of the first-generation IPPs in October 2012, under which SEV has been granted a 10-year extension. Nonetheless, we expect GB3’s debt-servicing ability to remain intact as the IPP is still entitled to earn full ACPs as per the terms in its PPA, so long as it maintains its operational parameters.

As at its last principal repayment date (i.e. 19 December 2012), GB3 achieved a finance service cover ratio (“FSCR”) of 2.30 times (with cash balances, post-distribution), underscored by its healthy cash pile of RM231.8 million. Based on a stressed scenario, it is expected to generate a respective RM174.3 million and RM150.4 million of annual pre-financing cashflow in fiscal 2013 and 2014, translating into corresponding FSCRs (with cash balances, post-distribution) of 1.55 times and 1.25 times on the principal repayment dates. In assessing GB3’s annual distributions to its shareholders, RAM assumes that the Company will adhere to its financial covenants throughout the ABBA Bonds’ tenure (i.e. on a forward-looking basis), as opposed to only the year of assessment. All said with minimal distributions, GB3's debt-servicing ability has remained strong to date, with its FSCR (with cash balances, post-distribution, calculated on financial year end) hovering around 1.80 to 2.52 times over the past 5 years.

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Asif M Noh

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asif@ram.com.my