Kimanis Power Sdn Bhd - 2013

MARC has affirmed its AA-IS rating on Kimanis Power Sdn Bhd's (KPSB) RM1,160.0 million sukuk programme (sukuk) with a stable outlook. The rating reflects an anticipated base-load position of the project, a 285-megawatt (MW) combined-cycle gas turbine power plant in Kimanis Bay, on the Sabah state's electricity dispatch curve. Other credit strengths of the project include its supportive long-term power purchase agreement (PPA) with a creditworthy utility; standard, well-proven technology, limited fuel supply risk, as well as 60% ownership and substantial involvement of PETRONAS Gas Berhad (PGB). Revenues from the PPA extend past the final maturity of the financing in 2028.

The rating also incorporates the expected revision to the estimated commercial operation dates (COD) for the project's three generating blocks stemming from schedule delay in the construction of the 275-kilovolt (kV) transmission line from the station to the main grid at Kolopis by offtaker Sabah Electricity Sdn Bhd (SESB) based on the report by KPSB’s independent project management consultant dated July 5, 2013. While the construction of the plant is slightly behind schedule with physical progress at 97.46% against the planned progress of 98.21%, MARC understands that the contractor for the interconnection facilities and communication facilities (IFCF) is expediting work on construction of the IFCF. Also slightly behind schedule, construction on the gas pipeline between the plant and the adjacent Sabah Oil and Gas Terminal (SOGT) is entering its final phase and the pipeline is scheduled to receive its first gas by the fourth quarter of 2013.

The aforementioned developments are for now manageable at the 'AA-' rating level in light of (i) provisions in the PPA allowing for deemed commissioning and payment of the available capacity payment to the IPP if the IPP is not able to achieve the commercial operation date for the affected generating block on the scheduled operation due to delays caused by the offtaker, which will provide sufficient revenues to support the project's fixed costs including debt service on the sukuk and mitigate the risk of foregone capacity revenues, (ii) possibility of offsetting additional extension of time costs (including engineering, procurement, construction and commissioning (EPC) costs and loss of variable operating rate (VOR) payments) with potential financing/project savings, (iii) its cash-funded finance service reserve account (FSRA) of RM18 million and project sponsors’ undertaking to provide cash deficiency support of up to RM50 million to fund KPSB’s debt service requirements in addition to cost overruns support for up to RM50.0 million during the construction phase.

MARC has analysed a number of project delay scenarios which include a six-month delay in COD and no energy revenues for 12 months. KPSB’s cash flow metrics are expected to remain consistent with the rating under these two scenarios with minimum and average finance service coverage ratios above 2.0 times and not less than 5.9 times respectively. Also providing protection to sukukholders during the construction phase are the significant undertakings extended by project sponsors to support debt servicing and cover construction cost overruns. Once the project is in operation, it is expected to generate stable cash flows under its long-term power contract. MARC's cash flow analysis indicates good downside protection under stress scenarios.

The stable rating outlook reflects the strong economics of the project, very high sponsor support, the comprehensive protection afforded by the provisions of the PPA, and the expectation that the project will be completed within budget. The rating could be negatively impacted if KPSB's actual CODs extend well beyond the revised estimated commercial operation dates and result in a significant weakening of its liquidity position. The rating may also be affected by plant operational problems, a deterioration in the offtaker's credit profile or changes in MARC's assessment of support. 

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