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