MARC AFFIRMS AAAIS RATING ON TTM SUKUK BERHAD’S RM600 MILLION SUKUK MURABAHAH

Feb 11, 2014 -

MARC has affirmed its AAAIS rating on TTM Sukuk Berhad’s (TTM SPV) RM600.0 million Sukuk Murabahah with a stable outlook. TTM SPV is a funding vehicle of Trans Thai-Malaysia (Thailand) Ltd (TTMT), an equal joint venture between national oil companies of Malaysia and Thailand, namely Petroliam Nasional Berhad (PETRONAS) and PTT Public Company Ltd (PTT) respectively. The sukuk was issued to fund the construction of two additional gas pipelines to transport natural gas from the Malaysia-Thailand Joint Development Area (JDA) in the Gulf of Thailand to industrial city of Rayong in Thailand. The construction is the second phase (Phase II) of the Trans Thailand-Malaysia (TTM) project, which comprises the construction and maintenance of a 677km gas transmission pipeline system and a gas separation plant.

The affirmed rating incorporates the vested interests of the project sponsors in ensuring the success of the TTM project and TTMT’s strong and predictable operating cash flow (CFO) generation provided by the project’s availability-based capacity revenues under long-term services agreements which end in 2045. The rating also considers the creditworthiness of PTT as the Phase II project’s sole offtaker and TTMT’s strong operational capabilities and its overall credit strength, in part derived from the credit linkages between the rated sukuk and the syndicated bank loan taken to finance the first phase of the TTM project.

MARC continues to incorporate a support uplift for the rating from project sponsors in particular PETRONAS based on the oil company’s financial strength. Notwithstanding the fact that TTMT and PTT are domiciled in Thailand and the Phase II project’s revenues are denominated in US dollars or the Thai baht equivalent, the rating is not constrained by Thailand’s foreign currency rating as MARC believes that the transfer and convertibility risks are adequately mitigated. This is based on the strong incentive on the part of PETRONAS to provide ringgit liquidity in the event of foreign exchange restrictions imposed by the Thai government, which would impair TTMT’s ability to convert Thai baht-denominated payments into US dollars for onward remittance to TTM SPV. 

TTMT receives stable revenues from the Phase II project based on the capacity reservation, of up to a maximum 600 million standard cubic feet per day (mmscfd), and calculated by the unit capacity reservation charge (UCRC), an annually reviewed variable that incorporates project’s cost components, debt service costs and equity return. MARC considers the variability of the cost-plus revenue structure as supportive of the project’s debt service capacity. For 2012 and 1H2013, the company registered lower revenue due largely to the volatility in the US$-THB exchange rates. Nonetheless, the Phase II project’s finance service coverage has remained adequate within the affirmed rating band. The project’s finance service cover ratio (AFSCR) for 1H2013 and 2012 of 2.98 times and 3.03 times respectively were well above the covenanted AFSCR of 1.1 times.

At the company level, TTMT’s financial strengths are characterised by its stable operating profit margins, robust CFO generation, ample liquidity and modest leverage. The fluctuations in TTMT’s earnings arise mainly from the translation of the company’s functional currency (US dollars) to its presentation currency (Thai baht); TTMT posted a net profit of THB1.74 billion on revenue of THB4.56 billion in 2012 (2011: THB0.80 billion; THB4.82 billion). TTMT’s debt-to-equity ratio of 1.25 times as at end-2012 also provides ample headroom against the company’s gearing cap of 70:30 (2.33 times). In addition, MARC takes comfort from the project sponsors’ demonstrated commitment in the TTM project via equity injections in prior years to maintain covenant compliance going forward.

Any change in the sukuk’s rating would be primarily driven by a material deterioration in TTMT’s credit metrics and/or a reduction in the TTM project’s strategic importance to the project sponsors.

Contacts:

Koh Shu Yunn, +603-2082 2243/ shuyunn@marc.com.my;

David Lee, +603-2082 2255/ david@marc.com.my.