TANJUNG BIN O&M BERHAD - 2023 |
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| Report ID | 60538900469670 | Popularity | 153 views 24 downloads | |||||
| Report Date | Dec 2023 | Product | ||||||
| Company / Issuer | Tanjung Bin O&M Bhd | Sector | Infrastructure & Utilities - Power | |||||
| Price (RM) |
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| Rationale |
Rating action MARC Ratings has affirmed its AA-IS rating on Tanjung Bin O&M Berhad’s outstanding RM165.0 million Sukuk Wakalah with a stable outlook. Rationale The rating reflects the credit strength of Tanjung Bin O&M’s parent, Malakoff Power Berhad (MPower) (AA-IS /Stable), which has provided an unconditional and irrevocable undertaking to top up any shortfall in the finance service reserve account (FSRA) for the Sukuk Wakalah, as well as the operational and financial linkages between the issuer and its parent. On this basis, MARC Ratings has applied a full credit substitution approach to Tanjung Bin O&M’s credit risk assessment with MPower’s senior credit. Wholly-owned by Malakoff Corporation Berhad (Malakoff), MPower undertakes the operations and maintenance (O&M) for its parent’s majority-owned domestic independent power producers (IPP). Tanjung Bin O&M provides O&M services for the 2,100MW power plant owned by sister company, Tanjung Bin Power Sdn Bhd (TBP) under an O&M agreement (OMA). Tanjung Bin O&M engaged MPower to undertake part of the services under a subcontract (sub-OMA); both the OMA and sub-OMA are coterminous with the 25-year power purchase agreement (PPA) between TBP and Tenaga Nasional Berhad (TNB). Tanjung Bin O&M’s revenue is mostly derived from fixed and variable operating fees; the latter is based on the TBP plant’s net electricity output. In 1H2023, revenue fell 9.1% to RM137.4 million as electricity output declined 20.6% on higher planned outages (93 days) for major maintenance works (1H2022: 85 days). This is in accordance with TBP’s maintenance programme; it has major maintenance outages planned for its three generating units between 2021 and 2024. The lower revenue in 1H2023 was also due to lower electricity dispatch by single buyer TNB in 1Q2023; this was due to the elevated coal prices during the period that had pushed up energy costs at coal-fired power plants like TBP. Cash flow from operation (CFO) was correspondingly negative because of the maintenance works. A significant planned outage in 2024 may also affect Tanjung Bin O&M’s performance next year. However, the company’s debt maturities and amortisation are manageable, with no debt due in 2024 and 2025, which should support liquidity. Its liquidity is further supported by cash balances of RM73.9 million as at end-September 2023. In the event of insufficient liquidity, MPower is expected to lend support through intercompany advances, as shown in past years. As regards MPower, its revenue streams are dependent on the performance of the power plants the company provides its O&M services for. MPower also receives dividend and payments of redemption proceeds related to the redeemable preference shares (RPS) issued by some of these power plants that it holds. MPower recorded pre-tax loss of RM13.5 million in 1H2023, as its revenue declined 14.9% y-o-y, due to expiry of the GB3 plant’s PPA, as well as the overall lower dispatch at Malakoff’s plants. Cash and bank balances (including investments) stood at RM411.5 million as at end-November 2023 and is sufficient to meet sukuk obligations of RM320.0 million in December 2023. Rating outlook The stable outlook incorporates our expectation that TBP will perform within expectations and that Tanjung Bin O&M’s liquidity will be sufficient to meet potential cash flow shortfalls during periods of plant downtime. The stable outlook also reflects the rating agency’s expectation that MPower will maintain its credit profile and remain capable of supporting Tanjung Bin O&M when required. Rating trajectory Upside scenario A rating upgrade would be considered in the event of an improvement in the credit profile of MPower. Downside scenario Downward pressure on the rating could occur if there is any material decline in the credit profile of MPower and/or a significant weakening of TBP's operating performance. Key strengths
Key risks
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