MARC Ratings has affirmed its AA_IS rating on Kimanis Power Sdn Bhd’s (KPSB) outstanding RM400.0 million Sukuk Programme with a stable outlook. KPSB owns a 285MW combined-cycle gas-fired power plant with three generating blocks (GB) in Kimanis Bay, Sabah.  

The plant has performed well since 2015 (its second year of operations); with the exception of a reduction of approximately RM5.1 million in 2023, there has been no CP underperformance in the past five years. In 2023, KPSB received RM198.2 million in CP, slightly below budget by 2.5%. This is due to an unplanned outage in January 2023, caused by some damaged blades on the steam turbine. Following the outage — the first major one experienced since 2015 — the unplanned outage rate (UOR) rose to 7.47% in March 2023, above the power purchase agreement (PPA) requirement of 4%. Nevertheless, the UOR improved to 2.30% by end-February 2024 as there had been no further major outages since then. Final rectification works (installation of new blades from Japan) were completed on March 21, 2024.

 

In addition to CP, KPSB received energy payments (EP) of RM146.2 million in 2023. The plant’s heat rate remained below the PPA limit, which allowed KPSB to fully pass through its fuel costs to Sabah Electricity Sdn Bhd (SESB). KPSB generated about RM191.4 million of cash flow from operations (CFO) in 2023 and maintained a healthy interest coverage ratio of 7.50x. MARC Ratings believes KPSB has more than sufficient liquidity from its operating cash flows (around RM180.0 million a year on average) and cash on hand (RM191.2 million as at end-2023) to meet its upcoming sukuk obligations, i.e. the RM21.3 million profit payment and RM70.0 million principal repayment due on August 8, 2024. The rating agency does not expect the cost to replace the blades (estimated at around RM7.0 million) to have a meaningful impact on the company’s liquidity position.

KPSB’s base case minimum finance service coverage ratio (FSCR) stands at 2.43x, with an average of 4.47x from 2024 to 2028. In MARC Ratings’ stress scenarios, KPSB would be able to withstand 2% heat rate degradation, 10% higher operating costs and 6% reduction in plant availability.

The rating is underpinned by KPSB’s long-term PPA entered into with regulated utility offtaker, SESB, that expires in September 2035. The 21-year PPA effectively mitigates demand risk for the plant’s output through its sukuk maturity. This enhances KPSB’s revenue and cash flow visibility in the long term, which MARC Ratings views as a credit strength. SESB is 80% owned by national power company, Tenaga Nasional Berhad (TNB), which carries a AAA/Stable rating from MARC Ratings. 

MARC Ratings notes that the Sabah state government is expected to take over TNB’s 80% stake in SESB. MARC Ratings does not expect the ownership transfer to materially affect offtaker risk, as the rating agency believes that the state government would have a high propensity to support SESB given its status as a state utility company. In addition, in Budget 2024, the federal government has affirmed its commitment to continue assisting the state government in strengthening Sabah’s electricity supply industry until the completion of the SESB Transformation Plan . 

PETRONAS Gas Berhad (PGB) is KPSB’s largest shareholder, which MARC Ratings views positively given its solid credit profile. Furthermore, the rating agency believes that KPSB’s long-term gas sales agreement with state-owned Sabah Energy Corporation (SEC) helps mitigate supply risk. Moderating the rating, however, is the inherent risk associated with plant performance.

The stable outlook incorporates MARC Ratings’ view that KPSB’s plant and financial performance will remain in line with projections in the next 12-18 months.

MARC Ratings does not foresee an upgrade in the near term, but a positive rating action could be possible if performance shows a stronger trend and credit metrics exceed projected levels. 

Downward pressure on the rating could happen in the event of an unexpected weakness in plant performance that would significantly impact KPSB’s cash flow generation.