MY Power Bonds Roundup
- Power bonds are actively traded and sought after due to (i) strong visibility of cash flow, underpinned by long term power purchase agreements (PPA) and financially strong offtakers, and (ii) safeguard measures for bondholders.
- On financial metrics, we find that:
Ø Manjung
(AAA) and Ranhill Powerton (RPI) (AA1) are the strongest while at the other end
lies Jimah Energy Ventures (JEV) (AA3) and Tanjung Bin Energy (AA3).
Ø Not all power names incorporate financial covenants but they all include distribution tests.
Ø Not all power names incorporate financial covenants but they all include distribution tests.
- 2013-1H2014 was a period of numerous operating challenges with 8 out of the 9 operational plants in this report having experienced issues, but financial impact was benign.
- Credit Strategy:
Ø We
like Manjung for its very strong standalone credit profile and are comfortable
with TNB related credits – Manjung, TNB Northern (AAA), TNB Western (AAA) and
Kapar (AA1).
Ø We also like Kimanis (AA3) for a possible upgrade down the road provided it achieves satisfactory operating performance and base case FSCR but not until at least 2016 annual review probably around Aug/Sep.
Ø Of the two subordinated bonds, we prefer Jati (AA3) due to its stronger cash flow. While it appears to offer value, there is not much liquidity for subordinated power bonds.
Ø We are not keen on JEV papers based on the project’s financial and business profile being less favorable but long dated ones may offer some value.
Ø We also like Kimanis (AA3) for a possible upgrade down the road provided it achieves satisfactory operating performance and base case FSCR but not until at least 2016 annual review probably around Aug/Sep.
Ø Of the two subordinated bonds, we prefer Jati (AA3) due to its stronger cash flow. While it appears to offer value, there is not much liquidity for subordinated power bonds.
Ø We are not keen on JEV papers based on the project’s financial and business profile being less favorable but long dated ones may offer some value.
- Credit Update:
Ø There
is still a possibility of a delay in Tanjung Bin Energy’s commissioning but a
slight delay of 1-3 months is not material.
Ø The listing of Tanjung Bin Energy’s project sponsor would not have immediate rating impact on related power bonds but is credit positive in our view.
Ø Credit Outlook: All the power names in this assessment currently carry a stable outlook from RAM or MARC.
Ø The listing of Tanjung Bin Energy’s project sponsor would not have immediate rating impact on related power bonds but is credit positive in our view.
Ø Credit Outlook: All the power names in this assessment currently carry a stable outlook from RAM or MARC.
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