FW: RAM Ratings reaffirms AA3 rating of Tanjung Bin Energy's sukuk

Published on 30 Aug 2017.

RAM Ratings has reaffirmed the AA3/Stable rating of Tanjung Bin Energy Issuer Berhad’s (TBE Issuer or the Company) RM3.29 billion Sukuk Murabahah (2012/2032). The rating reflects TBE Issuer’s continued strong debt-servicing ability, underlined by adequate cashflows notwithstanding the recent unsatisfactory performance of Tanjung Bin Energy Sdn Bhd (TBE)’s ultra-supercritical 1,000-MW coal-fired power plant in Tanjung Bin, Johor (the Plant). The rating is also supported by the favourable terms of TBE’s power-purchase agreement (PPA) with Tenaga Nasional Berhad (TNB). 

TBE’s cash generation has been within RAM’s expectations. This is despite the Plant’s significant downtime as a result of defect rectification works and leaks discovered in the generator following these works. The Plant recorded a rolling 365-day unscheduled outage rate of 14.52% as at end-May 2017, against the threshold of 6% to qualify for full available capacity payments (ACPs). This led to an ACP reduction of RM67.69 million in 5M FY Dec 2017, which was within RAM’s earlier sensitivity threshold of RM134 million for 2017. Despite further ACP reductions under RAM’s sensitised case, we expect the rating of the Sukuk to remain intact. All repair works have been completed and the Plant had subsequently operated smoothly, with no outage in June 2017 and a low monthly UOR of 0.97% in July 2017.

A wholly owned subsidiary of TBE, TBE Issuer is the contractor tasked with developing, constructing and financing the Plant for TBE. TBE, which is fully owned by Malakoff Corporation Berhad (Malakoff), in turn has a 25-year PPA with TNB to finance, construct and operate the Plant. TBE Issuer’s financial commitments will be supported by back-to-back payments from TBE. As such, RAM recognises the strong credit link between these entities and views them in aggregate.

On 9 June 2017, TBE signed a contract for the construction of a new jetty, the progress of which stood at 6.27% as at 15 July 2017. Pending completion of the jetty, TBE will need to incur barging costs for coal delivery, which in 2016 were within RAM’s expectation. The costs are however anticipated to rise given the slow approval process for the jetty’s construction. A prolonged delay in the completion of the jetty would elevate barging costs and exert pressure on the rating of the Sukuk. “Our assessment shows that TBE Issuer will be able to withstand a 3-month delay in the completion of the jetty up to end-June 2019, higher barging costs and cost overruns amounting to 5% of the contract price which is to be borne by TBE,” highlights Chong Van Nee, RAM’s Co-Head of Infrastructure & Utilities Ratings. 

RAM expects TBE Issuer’s credit metrics to stay strong, with its minimum finance service coverage ratio (with cash balances, post-distribution) projected to stand at 1.52 times for the remaining tenure of the Sukuk despite stress-test assumptions of higher unscheduled outage rates, barging costs, operational and capital expenditure. The rating also takes account of the Company’s healthy liquidity profile which is buffered by standby letters of credit – expected to be renewed every 6 months – to ensure that the Project Company’s Finance Service Reserve Account is fully funded.

A bullet repayment of RM1.29 billion under TBE Issuer’s Junior Term Loan Facility has been successfully refinanced via a RM800 million Sukuk Wakalah facility issued by TBE and a RM500 million shareholder’s loan extended by Malakoff on 15 March 2017.

 

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

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