FW: RAM Ratings reaffirms AA1/Stable ratings of YTL Power's debt issues

 

Published on 23 Jan 2018.

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RAM Ratings has reaffirmed the respective AA1/Stable ratings of YTL Power International Berhad’s (YTL Power or the Group) RM5 billion Medium-Term Notes Programme (2011/2036) and RM2.5 billion Sukuk Murabahah Facility (2017/2027). RAM places greater emphasis on its company-level credit metrics, which held up within our expectations in FY Jun 2017. The bulk of debts of the Group’s operating entities is concession-related, ring-fenced and non-recourse to the holding company, which forms the basis for this approach. As the credit profiles of YTL Power and its parent, YTL Corporation Berhad (YTL Corp), are perceived to be very closely linked, any deterioration in YTL Corp’s credit profile would have a negative impact on YTL Power’s (and vice versa).

The ratings reflect YTL Power’s strong business profile, backed by its geographically diversified earnings base. We expect steady income from Wessex Water Services Limited – the Group’s water and sewerage business in the UK – as well as consistent contributions from associate investments in the Indonesian power sector and power transmission in Australia. 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. 

Wessex Water Services’ continued operating excellence in FY Jun 2017 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 anticipated to continue to contribute positively to its financial performance. However, the performance of the Group’s Singaporean power segment under YTL PowerSeraya Pte Ltd remained subdued due to excess generating capacity in the market, which had caused the segment’s generation market share to trend downwards. 

YTL Power boasts a superior liquidity position, with substantial cash and cash equivalents amply covering external short-term debts. Specifically, the Group had RM10.77 billion of unencumbered cash on the same date, which is readily available if required and more than sufficient to fully repay company-level adjusted debts totalling RM10.34 billion. We derive substantial comfort from YTL Power’s ability to tap its subsidiaries and investments for dividends, in view of the centralised treasury function of the Group.

YTL Power’s balance sheet remained strained by a high debt level, which surged to RM28.56 billion as at end-June 2017 due to new debt raised, partly to fund the equity portion of the Group’s Jordanian power plant. Over the next 5 years, YTL Power’s debt load is expected to increase further to fund the construction of a power plant in Indonesia with a project cost of US$2.7 billion. Notwithstanding the additional debts to be raised, we expect YTL Power’s company-level operating cashflow to net debt coverage ratio to stay robust over the next 5 years.  

 

Analytical contact
Chin Wynn, CFA
(603) 7628 1170
chinwynn@ram.com.my

Media contact
Padthma Subbiah
(603) 7628 1162
padthma@ram.com.my