RAM Ratings has affirmed the AA2/Stable rating for Tanjung Bin Power Sdn Bhd’s RM4.5 bil Sukuk Ijarah Programme (the Sukuk).
RAM said the rating reflects Tanjung Bin Power’s robust operating performance of its 2,100 MW coal-fired power plant (the Plant), which ensures healthy cashflow and debt coverage. The company’s favourable power purchase agreement (PPA) with sole offtaker, Tenaga Nasional Berhad (TNB), supports its strong business profile. Like many other independent power producers (IPPs) however, the Company faces inherent regulatory and single-project risks.
In 2023, the power plant delivered a solid operating performance, earning full available capacity payments (ACPs) as it operated below PPA unscheduled outage limit thresholds of 6% and 8%. Its ACPs are derived from 85% of the Company’s capacity rate financial (CRF), the tariff rate that underscores its revenue profile.
Although the Company faces some demand risk due to the daily utilisation payments (underpinned by the remaining 15% of CRF), stronger electricity sales in the second half of 2023 enabled it to earn full payments with bonuses for the year. With the sharp decline in coal prices, Tanjung Bin Power was unable to fully pass on fuel costs to TNB in fiscal 2023 despite operating within heat rate requirements under the PPA.
On the sukuk repayment date of 16 August 2023, the Company’s finance service coverage ratio (FSCR, with cash balances, post-distribution) of 2.10 times remained robust, albeit below the rating agency’s earlier projected 2.64 times. This ratio was weighed down by considerable upfront spending on fuel procurement against lower fuel payments earned, in addition to higher-than-expected shareholders distribution. Consequently, cash reserves declined from the three-year average of RM2.16 bil (2019-2021) to RM666.98 mil as at end-December 2023. The fiscal year also saw the plant record its first pre-tax loss due to substantial negative fuel margins from plunging coal prices, an industry-wide challenge for coal IPPs.
Looking ahead, RAM said Tanjung Bin Power’s annual FSCRs (without cash balances) are expected to consistently remain below 1 time for the remaining tenure of the Sukuk, emphasising the Company’s dependence on its cash balances to meet sukuk obligations. RAM’s stressed cashflow projections, which considered lower distributions among other variables, indicate that the Company can maintain minimum and average annual FSCRs (with cash balances, post-distribution) of 1.65 times and 2.05 times, respectively, throughout the Sukuk’s tenure, supportive of its AA2 rating.
In that regard, the rating agect said it continues to monitor the Company’s dividend distributions to its 90% shareholder, Malakoff Corporation Berhad. While distributions are contingent on the Company meeting specific distribution covenants, maintaining or increasing them beyond current levels may deplete cash reserves and impact Tanjung Bin Power’s future debt coverage, potentially affecting the Sukuk’s rating.
