MARC has affirmed its AA-IS rating
on Malakoff Power Berhad’s (MPower) RM5.4 billion Sukuk Murabahah with a stable
outlook. The outstanding sukuk amount is RM4.34 billion. MPower is the
operations and maintenance (O&M) operator of the power plants owned by its
parent company Malakoff Corporation Berhad (Malakoff). Apart from the O&M
revenue, MPower receives interest income and principal redemption from its
holdings of RM1.75 billion loan stocks issued by Malakoff’s operating
subsidiaries.
The rating reflects the consolidated credit profile of
MPower and Malakoff in light of the strong operational and financial linkages
of the two entities. The significant linkages are based on common reliance on
the residual cash flows of its power plant portfolio and the explicit Kafalah
guarantee provided by Malakoff in favour of the sukukholders. The rating is
constrained by the group’s high leverage position as well as its continued
dependency on cash flow generation from its key subsidiaries, Tanjung Bin Power
Sdn Bhd (TBP) and Segari Energy Ventures Sdn Bhd (SEV).
Malakoff’s consolidated credit strength is
characterised by the group’s low business risk profile on the back of
predictable cash flows from Malakoff’s power generating subsidiaries under
long-term power purchasing agreements (PPA) with Tenaga Nasional Berhad (MARC
rated: AAA/Stable). Malakoff, currently the largest independent power producer
(IPP) in Malaysia, owns and operates four gas-fired power plants and two
independent coal-fired power plants. The group’s total gross power generation
capacity in Malaysia has increased to 8,249 megawatts (MW) following the
commencement of commercial operations of Tanjung Bin Energy Sdn Bhd’s (TBE)
1,000MW coal-fired power plant on March 21, 2016.
MARC views TBE’s commencement of plant commercial operations
would increase Malakoff group’s operating cash flow as well as address the
refinancing of the RM1.3 billion equity bridge loan (EBL). The EBL was raised
to fund the equity portion of the TBE power plant project and is expected to be
repaid through the proceeds from the issuance of RM800 million unrated
perpetual sukuk and RM500 million shareholders’ advances from Malakoff on March
15, 2017.
For 9M2016, MPower generated an unaudited operating
income of RM104.9 million from O&M services. The company continued to rely
on interest income and principal repayment on the loan stock amounting to
RM449.8 million largely contributed by TBP and SEV to meet the finance service
obligations on the rated sukuk in 9M2016. At the group level, Malakoff
registered a 15.0% year-on-year (y-o-y) increase in its 2016 consolidated
revenue attributable to contributions from TBE. However, its pre-tax profit in
2016 decreased to RM637.5 million from RM702.0 million in the last
corresponding period mainly due to higher depreciation charges, maintenance
costs as well as lower contribution from Port Dickson Power Sdn Bhd (PDP) upon
its PPA extension on March 1, 2016. The group’s total outstanding debt stood at
RM17.5 billion as at December 31, 2016, translating to a debt-to-equity ratio
of 2.86 times.
The Malakoff group is expected to achieve a combined
finance service cover ratio (with cash) of 3.84 times on the rated sukuk for
the next three years. MARC is cautious on a decrease in dividend contribution
and loan stock repayment from TBP due to the commencement of its project senior
debt obligations and the corresponding step down of its capacity rate financial
(CRF) in 2H2019. While the Malakoff group would also need to provide
shareholders’ advances to TBE to meet the finance service on the perpetual
sukuk upon the completion of the EBL refinancing, some comfort can be drawn
from the deferral distribution feature that helps preserve liquidity.
The stable outlook reflects MARC’s expectations that
Malakoff’s power generating subsidiaries will continue to deliver satisfactory
operational and financial performances to support the group’s debt obligations.
Downward pressure on the rating may emerge if Malakoff’s consolidated
debt-to-equity ratio deviates significantly from the rating agency’s
expectations and/or the group’s liquidity position declines sharply as a result
of plant underperformance. MARC may also revise its rating outlook if TBE fails
to complete the EBL refinancing or obtain an extension of the EBL maturity date
from the financier by March 15, 2017.
Contacts: Ng Chun Kean, +603-2082 2230/ chunkean@marc.com.my; David
Lee, +603-2082 2255/ david@marc.com.my.
March 14, 2017
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