MARC has
affirmed its AA-IS rating on Tanjung Bin O&M Berhad's (Tanjung Bin O&M)
RM470.0 million Islamic Securities (Sukuk Wakalah) with a stable outlook.
Tanjung Bin O&M is the main operator of the 2,100-megawatt (MW) coal-fired
power plant owned by related entity Tanjung Bin Power Sdn Bhd (TBP). The
issuer's key operational obligations under the O&M agreement (OMA) with TBP
have been transferred to parent company Malakoff Power Berhad (MPower) via a
sub-OMA; both the OMA and sub-OMA are co-terminous with the 25-year power
purchase agreement between TBP and Tenaga Nasional Berhad (TNB).
The
affirmed rating incorporates the satisfactory operational performance of the
TBP plant since the completion of the boiler improvement programme in March
2014, the adequacy of the cash trap mechanism under the transaction structure
and the strength of the unconditional and irrevocable cash deficiency support
provided by parent company MPower. The cash deficiency support will require
MPower (rated AA-/Stable) to top up any shortfall in Tanjung Bin O&M's
finance service reserve account (FSRA) funding requirement. MARC notes that
MPower has fulfilled an undertaking to make full payments to TBP for the
liquidated ascertained damages (LAD) incurred by Tanjung Bin O&M in
relation to a number of unscheduled outages in 2013; the parent company also
absorbed the expenses related to the boiler improvement works pursuant to TBP's
recovery programme.
For 2014,
the plant's average capacity factor improved sharply to 83.2% (2013: 64.0%),
leading to an 18.8% increase in Tanjung Bin O&M's revenue to RM323.5
million (2013: RM272.4 million) and its first profit before tax of RM42.8
million (2013: loss before tax of RM178.6 million). Operating cash flow (CFO)
rose to RM74.9 million (2013: negative RM402.0 million), providing adequate
coverage against sukuk obligations comprising a principal redemption of RM20.0
million and semi-annual profit payments totalling RM22.4 million. In addition,
Tanjung Bin O&M's FSRA has been adequately funded to meet upcoming payments
of RM60.8 million due on the Sukuk Wakalah on July 1, 2015. MARC
highlights Tanjung Bin O&M's continued weak current ratio of 0.56 times (x)
in 2014 (2013: 0.48x) but notes that this arose mainly from non-trade payables
of RM214.5 million which are due to MPower and ultimate holding company
Malakoff Corporation Berhad. The non-trade payables are considered akin to
equity as any claim on the payables is expected to be conditional upon the
adequacy of the liquidity buffer to meet the issuer's payment obligations and
maintenance of the 80:20 covenanted debt-to-equity ratio.
The updated
base case cash flow projections demonstrate Tanjung Bin O&M's ability to
maintain sound finance service cover ratios (FSCR) of at least 2.10x before
distribution. MARC's sensitivity analysis shows that Tanjung Bin O&M would
be able to meet its sukuk obligations and maintain compliance with the 1.25x
minimum FSCR covenant on a standalone basis under moderate stress scenarios on
the condition that dividend payouts remain moderate in the years when no
redemptions on the Sukuk Wakalah are scheduled. However, under a severe stress
of persistent underperformance of the plant and/or drop in electricity demand
from TNB, Tanjung Bin O&M's FSCR is expected to fall below 1.00x (if the
plant's capacity factor averages below 59.0%). Should this occur, MARC expects
MPower to provide timely cash injections into Tanjung Bin O&M's FSRA under
the cash deficiency support mechanism.
The stable
outlook reflects MARC's expectations that the plant will continue to
demonstrate satisfactory operational performance and high despatch levels.
Changes to the rating and outlook of the Sukuk Wakalah would be largely driven
by changes in the financial profile of MPower, the provider of cash deficiency
support.
Contacts:
Koh Shu Yunn, +603-2082 2243/ shuyunn@marc.com.my;
David Lee, +603-2082 2255/ david@marc.com.my.
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