RAM Ratings reaffirms AA1 rating of GB3's Islamic debt securities

RAM Ratings (24 May 2011): RAM Ratings has reaffirmed the AA1 rating of GB3 Sdn Bhd’s (GB3 or the Company) RM850 million Senior Secured Al-Bai Bithaman Ajil Bond Facility (ABBA Bonds), with a stable outlook. GB3 is an independent power producer (IPP) operating a 640-MW combined-cycle, gas-turbine power plant (the Plant) in Lumut, Perak.

The rating remains supported by GB3’s strong business profile, underscored by the favourable terms of its Power Purchase Agreement (PPA) with Tenaga Nasional Berhad (TNB). Similar to all other IPPs, however, the rating is moderated by regulatory and single-project risks.

In 2010, GB3 incurred available capacity payments (ACPs) loss of RM5.70 million, as its unscheduled outage rate (calculated based on a 365-day rolling average) exceeded the PPA limits following an incident involving one of its transformers in May 2009. However, there had been no material financial impact on the Company as such ACP losses and penalties had been largely compensated by both the insurer and the IPP’s operations and maintenance (O&M) service provider.

Meanwhile, we note that it may be challenging for GB3 to meet the requirement on its 3-year availability target (“AT”) due to the tight average AT of 91.53% projected for the third 3-year AT block (2009 to 2011) versus the PPA limit of 91.50%, which leaves little room for variations. Nonetheless, some comfort can be derived from the liquidated damages up to RM4 million claimable under its O&M Agreement.

Based on a stressed scenario, GB3’s minimum and average finance service cover ratios (FSCRs) (with cash balances, post-distribution) on principal repayment dates are projected to come in at 1.25 times and 1.51 times, respectively. RAM Ratings assumes that the Company will adhere to its financial covenants throughout the ABBA Bonds’ tenure (i.e. on a forward-looking basis). Such financial covenants include compliance with its finance service reserve account requirement, a post-distribution FSCR of 1.25 times and a debt-to-equity ratio of 90:10. Notably, the minimum covenanted FSCR is less stringent than those of the other AA-rated IPPs in RAM Ratings’ portfolio. All said, GB3's debt-servicing ability has remained strong to date, with its FSCR (with cash balances, post-distribution) hovering around 1.89 to 2.71 times over the past 5 years.

Full report: www.ram.com.my