FOR IMMEDIATE RELEASE
MARC AFFIRMS ITS AA-IS RATING ON KIMANIS POWER’S RM1,160.0 MILLION SUKUK PROGRAMME
MARC has affirmed its AA-IS rating on Kimanis Power Sdn Bhd's (KPSB) RM1,160.0 million Sukuk Programme (sukuk) with a stable outlook. KPSB is the owner of a 285-megawatt (MW) combined-cycle gas-fired power plant at Kimanis Bay, Sabah.
The affirmed rating continues to be underpinned by the favourable terms of KPSB’s 21-year power purchase agreement (PPA) that allocates demand risk and fuel price risk to the offtaker, Sabah Electricity Sdn Bhd (SESB). SESB is an 83%-owned subsidiary of Tenaga Nasional Berhad (TNB), which has a senior unsecured debt rating of AAA/Stable from MARC. The affirmed rating is supported by the creditworthiness of KPSB’s majority shareholder, PETRONAS Gas Berhad (PGB) and the long-term gas sale agreement (GSA) with Petroliam Nasional Berhad (PETRONAS) until June 2029 which mitigates fuel supply risk.
MARC notes that the power plant’s operations have continued to meet the PPA requirements in relation to heat rate and unscheduled outage rate. The average load factor of the power plant, which currently accounts for about 19% of the current installed generation capacity in Sabah, was higher at 69.7% in 2016 (2015: 64.7%), enabling the power plant to fully pass through its fuel costs to SESB. Additionally, the power plant achieved average availability target of 96.6% in its first contract year block of 2014-2016 against the PPA’s contracted average availability target requirement of 96.3%.
KPSB’s capacity payments were within expectations in 2016 and 1Q2017 while energy payments were higher than the budgeted amount due to a higher load factor. In 2016, KPSB’s revenue was stable at RM198.8 million while its operating profit before interest and tax, declined sharply to RM25.9 million due largely to unrealised net foreign exchange losses arising from the fair value assessment of forward foreign exchange contracts. Net cash flow was negative RM66.8 million, largely as a result of a RM100 million sukuk repayment. KPSB’s ending cash balance declined to RM147.6 million in 2016 (2015: RM214.3 million). As at December 31, 2016, KPSB’s finance service cover ratio (FSCR) stood at 2.10 times (x) against a covenant of 1.25x.
Under the base case cash flow projections, KPSB’s minimum and average pre-distribution FSCR with cash balances stand at 1.74x and 2.29x respectively. The projections are premised on a plant load factor of 65% and a MYR/US$ exchange rate of RM4.30 throughout the sukuk tenure. MARC’s sensitivity analysis demonstrates that the projections are more sensitive to reductions in capacity payments and increases in O&M costs than increases in fuel costs. Assuming an increase of 4% in its operating costs, the power plant would need to operate on a load factor of 70% to break even. Going forward, MARC expects KPSB to prudently manage its dividend distributions to maintain sufficient headroom against any plant underperformance and/or unbudgeted outlays. Based on the projections, KPSB is expected to incur an average of RM40 million in dividend distributions over the next three years.
KPSB has entered an arbitration with SESB to recover RM82.9 million of additional costs and deemed capacity payments. These were incurred during the prolonged commissioning phase caused by delays to construction of the 132 kilovolt (kV) and 275kV transmission lines connecting the plant to the main grid. The rating agency is concerned that a prolonged dispute between the parties could affect KPSB.
The stable outlook incorporates MARC’s expectations that KPSB would maintain its commendable plant performance within the PPA requirements. Downward pressure on the rating and/or outlook may occur in the event of any significant deterioration in plant performance that weakens KPSB’s debt servicing ability and/or the credit profile of SESB deteriorates.
September 13, 2017
[This announcement is available in the MARC corporate homepage at http://www.marc.com.my]
--- DISCLAIMER ---
This communication is provided by Malaysian Rating Corporation Berhad (MARC) on the basis of information believed by MARC to be accurate and reliable as derived from publicly available sources or provided by the rated entity or its agents. MARC, however, has not independently verified such information and makes no representation as to the accuracy or completeness of such information. Any assignment of a credit rating by MARC is solely to be construed as a statement of its opinion and not a statement of fact. A credit rating is not a recommendation to buy, sell, or hold any security.
© 2017 Malaysian Rating Corporation Berhad
The information contained in this email and/or any attachment hereto is strictly confidential and privileged. If you are not the intended recipient, and/or have received this email in error, you must not copy, disseminate or disclose the contents of this message and/or any attachment to any other person. Please notify the sender and delete this message and any attachment from your system. Malaysian Rating Corporation Berhad (“MARC”) accepts no liability in respect of prohibited and unauthorised use by an unintended addressee or recipient. Any opinion, view or other information in this message and/or any attachment hereto which does not relate to the official business of MARC is that of the individual sender. Although this email and/or any attachment is believed to be free of any virus or other defect which may affect any computer system into which it is received and opened, it is the responsibility of the recipient to ensure that it is virus-free and MARC accepts no responsibility for any loss or damage arising in any way from the use thereof.