Monday, February 20, 2017

RAM Ratings has assigned a rating of AA1/Stable to YTL Power International Berhad’s (YTL Power or the Group) Proposed RM2.5 billion Sukuk Murabahah Facility and reaffirm

Published on 17 Feb 2017.

RAM Ratings has assigned a rating of AA1/Stable to YTL Power International Berhad’s (YTL Power or the Group) Proposed RM2.5 billion Sukuk Murabahah Facility and reaffirmed the same rating of the Group’s RM5 billion MTN Programme (2011/2036). Notwithstanding the Group’s softer earnings and expanding debt load owing to new projects, RAM places greater emphasis on its company-level credit metrics, which held up within our expectations in FY Jun 2016. Unlike other corporates, the bulk of debts of the Group’s operating entities is concession-related, ring-fenced and non-recourse to the holding company. The ratings also factor in substantial unencumbered cash residing at YTL Power’s intermediary companies which can be readily repatriated as and when needed to service company-level debts.
Proceeds from the issuance of the proposed sukuk would be used to fund the equity contribution of a 1,320-MW coal-fired power plant in Indonesia and a 470-MW oil-shale power plant in Jordan1  – the construction of which is to be undertaken by YTL Power and respective project partners. The project costs of the Indonesian and Jordanian plants are estimated at US$2.7 billion and US$2.1 billion, respectively, and would be largely financed by non-recourse debt. Notwithstanding the additional debts to be raised, we expect YTL Power’s company-level debt coverage metrics to remain healthy over the next 5 years. This ratio reflects YTL Power’s ability to repatriate dividends from its subsidiaries to meet company-level debts. 
In FY Jun 2016, the continued operating excellence of YTL Power’s water and sewerage business in the UK – Wessex Water Services Limited – cemented the Group’s position as one of the best-performing companies in the sector. The commendable operating track records of the Group’s other regulated assets – PT Jawa Power and ElectraNet Pty Limited – are also expected to continue to contribute positively to its financial performance. However, the performance of YTL PowerSeraya Pte Ltd (PowerSeraya) has deteriorated due to excess generating capacity in the Singaporean power market given the entrance of new players. Over the past 5 years, installed capacity has risen over 30%. This gave rise to an excessive reserve margin of 94.0% as at end-March 2016, resulting in a downward trend in PowerSeraya’s generation market share. 
YTL Power’s liquidity position is deemed superior, with a sizeable cash balance of RM9.76 billion amply covering short-term debts of RM413.31 million as at end-June 2016. Specifically, the Group had unencumbered cash amounting to RM8.65 billion as at the same date, which is readily available if required and more than sufficient to fully repay company-level adjusted debts totalling RM7.00 billion. We derive substantial comfort from YTL Power’s ability to tap its subsidiaries and investments for dividends given the centralised treasury function of the Group.
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1 YTL Power owns a 30% stake in the Jordanian project and has entered into agreements to increase its stake to 45%, expected to take place upon financial close.

Analytical contact
Chin Wynn, CFA
(603) 7628 1170
chinwynn@ram.com.my
Media contact
Padthma Subbiah
(603) 7628 1162
padthma@ram.com.my

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