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Highlights
of this week’s AmBank FX Weekly Outlook as follow:-
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·
US
GDP and Fed interest rate decision in focus
·
Expect
USD/MYR to fluctuate in the range of 4.4227-4.4435
·
Key
watch:- US Fed, UK BOE and, Japan BOJ interest rate decisions
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Friday, January 27, 2017
· US GDP and Fed interest rate decision in focus
Next week brings a handful of events - 3 major central bank meetings; British parliament begins Brexit bill debate on Tue and US payrolls on Fri. Bias remains to buy USD on dip
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20 years inside the minds of the CEO
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MARC has affirmed the rating of AAAIS on TNB Western Energy Berhad's (TNB Western Energy) Islamic Sukuk of up to RM4.0 billion with a stable outlook.
TNB Western
Energy is the funding conduit of TNB Manjung Five Sdn Bhd (TNB Manjung Five),
the project company for the construction of the 1,000-megawatt
ultra-supercritical coal-fired power plant under a 25-year power purchase
agreement (PPA) with Tenaga Nasional Berhad (TNB) in Manjung, Perak.
The
affirmed rating and outlook are equalised to TNB's ratings of AAA/stable from
MARC based on the unconditional and irrevocable project completion support
guarantee and a rolling guarantee in favour of the sukukholders provided by
TNB. MARC's assessment is further underpinned by TNB's undertaking to maintain
full ownership of TNB Western Energy through TNB Manjung Five and by the
multiple operational linkages between all three entities.
During the
review period, the project's cost was revised upwards to about RM5,470 million
from RM5,114 million due to currency fluctuations, an increase in net interest
during construction, staff costs and higher-than-expected fuel costs during the
commissioning phase. The increase of RM356 million is expected to be covered by
TNB's completion support guarantee (10% of project costs or RM511.4 million).
The company has hedged all foreign-denominated contract payments until April
2017, leaving only an amount of about RM86.8 million in unhedged contract
payments. MARC does not expect the total project cost to be revised further
given that the project is at the final stage of construction. TNB Western
Energy has also budgeted a construction contingency fund of RM100.5 million in
the revised project cost.
As of
October 31, 2016, the project was 97.9% completed with an accrued project cost
of RM4.82 billion against the projected amount of RM4.8 billion. Following the
successful back-energisation exercise on June 30, 2016, the power plant remains
on course to meet its scheduled commercial operation date (COD) on October 1,
2017. In the event of a failure to achieve the scheduled COD, TNB Manjung
Five's liability is adequately covered by provisions for liquidated damages
claimable from the engineering, procurement and construction contractors. At
the same time, sukukholders are protected against the risk of completion delay
by TNB's funding support for scheduled distributions on the sukuk for up to a
12-month period post the scheduled COD.
Upon
commissioning, TNB Manjung Five is expected to generate predictable cash flow
streams provided by the PPA's availability-based capacity payments as well as
the pass-through of fuel and variable expenses to TNB. The project's exposure
to operations and maintenance (O&M) as well as fuel supply risks are deemed
low due to the O&M operator and fuel supplier's track record, experience
and their strong linkages with TNB. Although the bullet repayment of RM1,315
million due in 2034 will expose TNB Western Energy to significant refinancing
risk, MARC draws comfort from the availability of a rolling guarantee from TNB
and working capital facilities of up to RM200 million to address any short-term
liquidity risks.
Upon taking
into account the increased project cost, the company's revised base case
(assuming no dividend payment) minimum and average finance service cover ratios
(FSCR) without cash balance have further declined to 1.27 times (x) and 1.33x
respectively. MARC's stressed scenarios reveal that TNB Western Energy would
breach the 1.0x FSCR in the event of further cost overruns and is susceptible
to potential FSCR breaches if the plant does not meet the required heat rates
and experiences an unplanned outage rate of 8%. Should the project's cash flow
generation be affected due to plant underperformance, any shortfall of sukuk
obligations will be met via an injection of funds under TNB's rolling guarantee
terms. The rolling guarantee will commence upon cessation of TNB's completion
support and will be in force until the final maturity date of the sukuk,
covering scheduled semi-annual distributions on the sukuk on a non-accelerable
basis.
In addition
to the completion support and rolling guarantee, TNB Western Energy's
shareholding covenant and TNB Manjung Five's operational proximity to TNB
represent drivers of parental implicit support. This is crucial in ensuring
additional support is forthcoming from TNB in the event the completion support
has been exhausted.
The stable
outlook reflects that of TNB's unsecured senior rating. Any changes in TNB
Western Energy's rating and/or outlook would be primarily driven by a revision
of TNB's rating and/or outlook.
Contacts:
Adib Asilah, +603-2082 2243/ asilah@marc.com.my:
Ng Chun Kean, +603-2082 2230/ chunkean@marc.com,my:
David Lee, +603-2082 2255/ david@marc.com.my.
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