RAM Ratings reaffirms Prai Power's AA3 rating

RAM Ratings (24 May 2011): RAM Ratings has reaffirmed the AA3 rating of Prai Power Sdn Bhd’s (Prai Power or the Company) RM780 million Al-Istisna Fixed-Rate Serial Bonds (Bonds), with a stable outlook. Prai Power is an independent power plant (IPP) that owns and operates a 350-MW combined cycle, gas-turbine power plant in Prai, Penang (the Plant).

The rating remains supported by Prai Power’s strong business profile, underscored by the favourable terms of its power purchase agreement (PPA) with Tenaga Nasional Berhad (TNB). For the period under review, the Company was able to claim 99.2% of its available capacity payments (ACPs) and fully pass through its fuel costs to TNB.

Nonetheless, Prai Power has utilised much of its allowance for scheduled maintenance permitted under the PPA during the first (2009) and second (2010) years of its third 3-year availability target (AT) block ending 31 December 2011. Given this, it remains a challenge for the Company to meet the AT requirement for the current AT block; should there be a breach, the Company would have to pay penalties to TNB. Meanwhile, the Plant underwent more unscheduled maintenance in 2010. Based on RAM Ratings’ sensitivity tests, however, Prai Power’s debt-servicing ability is envisaged to remain intact, with a minimum financial service coverage ratio of 1.50 times (with cash balances, post-distribution) on principal repayment dates. Our sensitised cashflow assumes that the Company will adhere to its financial covenants throughout the Bonds’ tenure (i.e. on a forward-looking basis as opposed to only the year).

Meanwhile, the single-shaft design of the Plant is an inherent technological limitation for Prai Power as the entire facility would have to be shut down should it experience any disruption to any component attached to the generator. The compensation from its operation and maintenance service provider - capped at RM9 million - and insurance against revenue losses, while in place, may not be sufficient to cover the Plant’s revenue losses should it experience lengthy unscheduled outages, as was the case in 2006. While the losses in ACPs so far have not dented Prai Power’s financial profile, we note that its debt-servicing ability may be affected by the recurrence of lengthy unscheduled outages. In addition, the rating remains moderated by regulatory and single-project risks, similar to all other IPPs.

www.ram.com.my