Rating action          

MARC Ratings has affirmed its rating of AAA_IS on TNB Western Energy Berhad’s (TNB Western) outstanding sukuk of RM3.7 billion with a stable outlook. 

TNB Western is the funding vehicle of TNB Manjung Five Sdn Bhd (TNB Manjung Five), a 100% indirectly-owned subsidiary of Tenaga Nasional Berhad (TNB). TNB Manjung Five operates and maintains a 1,000MW ultra-supercritical coal-fired power plant in Manjung, Perak, under a 25-year power purchase agreement (PPA) with TNB. 

The affirmed rating continues to reflect the equalisation to the corporate credit rating of AAA/Stable of TNB based on the strength of its unconditional and irrevocable rolling guarantee to fund shortfalls in the finance service account (FSA). The rating also considers TNB’s undertaking to maintain full ownership (directly/indirectly) in TNB Manjung Five and TNB Western throughout the tenure of the sukuk. TNB Manjung Five operates and maintains the 1,000MW plant under a 25-year PPA with TNB.

The plant recorded an unplanned outage rate (UOR) above the PPA-limit of 6% between October and December as a result of extended outage experienced during a major planned maintenance on a steam turbine. UOR as at end-December 2022 stood at 7.88%. Consequently, capacity payments (CP) fell slightly by 1.70% to RM298.8 million. The plant has not experienced any major operational issue since January 2023, leading to the UOR declining to 7.23% as at end-March 2023.

Against a backdrop of high coal price, TNB Manjung Five received higher energy payments (EP) of RM1,670.4 million compared to forecast EP of RM778.4 million and fully passed through its fuel costs. Based on base case cash flow projections, minimum and average finance service coverage ratios (FSCRs) stand at 1.25x and 2.05x. Cash flow from operations (CFO) was lower at RM246.2 million (2021: RM346.6 million) due to higher inventory of consumables for major maintenance in 2023. As at end-February 2023, cash balances in designated accounts stood at RM320.6 million, sufficient to meet upcoming financial obligations. 

Downside rating pressure could occur in the event of weakening in TNB’s credit profile and/or TNB’s support to TNB Western.