MARC affirms AAAis on TNB’s RM1.6b sukuk


Malaysian Rating Corp Bhd (MARC) has affirmed its AAAis rating on utilities firm Tenaga Nasional Bhd’s (TNB) subsidiary Northern Energy Bhd’s (TNB NE) outstanding Islamic securities (sukuk) of RM1.6 billion yesterday with a ‘Stable’ outlook.

MARC said in a statement yesterday the rating equalisation is based on commitment from TNB to provide post-completion rolling guarantee in favour of sukuk holders.

TNB NE is a funding vehicle of its parent TNB Prai Sdn Bhd, a wholly owned subsidiary of TNB, for the construction of a 1,071.43MW combined-cycle gas turbine power plant in Seberang Perai Tengah, Penang.

“The assessment is further underpinned by TNB’s undertaking to maintain full ownership of TNB NE, as well as TNB’s substantial operational and financial linkages with both TNB NE and TNB Prai,” the rating agency said.

MARC said the ‘Stable’ outlook mirrors the outlook on TNB’s senior unsecured rating and any changes in TNB NE’s rating or outlook would primarily be driven by a revision of TNB’s prospects.

MARC noted it would continue to monitor the heat rate performance to ascertain if the plant operates within power purchase agreement (PPA) specified requirements.

The rating agency remained concerned on any prolonged outages going forward given that the project base case coverage without cash averages 1.26 times.

The rating agency’s sensitivity analysis estimated that project coverage is relatively vulnerable in 2017 and 2018, as the project may experience a cash deficit should the plant encounter further reduction in its capacity revenue and energy payments.

MARC said the availability of rolling guarantee was positive as TNB NE shareholders would inject funds into the company should the need arise.

TNB Prai has been receiving availability-based revenue under a 21-year PPA with offtaker TNB since February 2016 when the gas-power plant commenced operations.

MARC said during the period under review, the plant encountered unplanned out- ages in May 2016 and September 2016 due to pipe cracks and a tube leak of its heat recovery steam generator respectively.

The outages during both months led to lower average monthly availability target of 85.4% up to end of January 2017, it added.

MARC said TNB Prai received total capacity revenue of RM175.2 million between February 2016 and January 2017, which was 7.8% below the budgeted amount due to the breach in unscheduled outage limit of 4%.