Published on 28 November 2013
RAM Ratings has reaffirmed the
respective AAA/stable and AAA(s)/stable ratings of Series 1 and Series 2 of
Manjung Island Energy Berhad’s (Manjung Island) Islamic Securities Programme of
up to RM5 billion (Sukuk). The enhanced AAA(s) rating of Series 2 reflects the
corporate guarantee from Tenaga Nasional Berhad (TNB), whose AAA/stable debt
rating was reaffirmed by RAM in May 2013.
Manjung Island is a
special-purpose vehicle set up to raise the funds required for the development
of TNB Janamanjung Sdn Bhd’s (TNBJ or the Company) new 1,000-MW supercritical
coal-fired power plant (the new plant). Manjung Island will derive lease
payments from TNBJ. In addition, the Sukuk holders’ recourse to TNBJ under the
Ijarah structure is recognised via the Purchase Undertaking between Manjung
Island and TNBJ. In this regard, we recognise the strong credit link between
these entities and view both companies in aggregate from a credit standpoint.
TNBJ currently operates a 2,100-MW coal-fired plant made up of three 700-MW generating
units (the existing plant).
The ratings remain supported by
TNBJ’s strong business profile that is backed by the favourable terms of its
Power Purchase Agreement with TNB and the Company’s robust debt coverage, which
is underpinned by its well-matched repayment profile and stringent covenants.
TNBJ’s financing structure isolates construction risk as the cashflow from the
Company’s existing plant can amply service the obligations on Series 1. Based
on our sensitised cashflow analysis, which excludes the new plant’s cashflow,
the Company is expected to register superior minimum and average annual finance
service coverage ratios (with cash balances, post-distribution, calculated on
the principal repayment dates) of a respective 2.00 and 3.90 times throughout
the tenure of Series 1. Meanwhile, we note that the existing plant is viewed to
be strategically important to TNB, which has provided a perpetual standby
letter of credit that covers the requirements of Manjung Island’s Finance
Service Reserve Account and a letter of undertaking that covers up to RM300
million of construction cost overruns for the new plant.
While TNBJ has been incurring CP
losses over the past 5 years due to various operational problems, the Company
received full CPs in FY Aug 2013 following concerted remedial actions.
Nonetheless, TNBJ incurred RM23.55 million of CP losses in September 2013, and
will consequently not be able to earn full CPs in FY Aug 2014. We also note
that TNBJ was unable to pass through its fuel costs in FY Aug 2013. We
highlight that the Company’s superior projected debt-coverage metrics take into
account rigorous sensitivities on CP losses, on top of negative fuel margins.
Similar to all other independent
power producers, TNBJ is exposed to regulatory and single-project risks.
Media contact
Chinthamani Thanneermalai
(603) 7628 1013
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