MARC has affirmed Tenaga Nasional Berhad (TNB)’s issuer rating at AAA and the sukuk rating on TNB’s RM2.0 billion Al-Bai’ Bithaman Ajil Bonds at AAA_IS with a stable outlook. 

The ratings continue to incorporate a two-notch uplift from TNB’s standalone corporate credit rating of AA/Stable to reflect MARC's assessment of a high likelihood of government support premised on TNB’s strategic importance as the national electricity company. Additionally, the Ministry of Finance also owns a golden share in TNB suggesting the importance of the utility company’s strategic business direction. 

The rating agency continues to view that TNB’s credit profile will not be materially affected by the ongoing group reorganisation as TNB will retain its holdings of vital transmission and distribution (T&D) assets and maintain its monopoly in T&D business. 

With regard to Malaysia Electricity Supply Industry 2.0 (MESI 2.0), there is a potential risk of losing some market share in the generation and retail segments. Nonetheless, any such loss is not expected to have a material impact on TNB’s performance as the utility company will continue to have a significant market share in electricity generation in Peninsular Malaysia, Sabah and Labuan. TNB’s power plants accounted for about 55.7% or 14,038 MW of total installed capacity in Peninsular Malaysia as at end-September 2019. 

In 9M2019, the group’s revenue increased moderately by 2.4% to RM38.7 billion, reflecting tepid electricity demand. However, profit after tax was slightly lower at RM3,860.9 million (9M2018: RM3,896.6 million) due to impact from the MFRS 16 adoption on lease assets which is related to TNB’s obligations to independent power producers (IPP) under power purchase agreements (PPA). Excluding the impact from MFRS 16, profit after tax would be RM4,063.6 million. 

During the period under review, its debt-to-equity (DE) ratio remained moderately high at 0.80x, partly due to continued capex spending. However, pressure on the leverage is likely to ease in line with the capex reduction for new generation capacity which fell to RM2.3 billion in 9M2019 from RM2.7 billion in the previous corresponding period. Approximately 61.6% of the capex was attributed to recurring capex whereas 38.4% was utilised for new generation capacity and others compared to 45.3% in 2018. MARC expects the capex for new generation capacity to decline, in part due to the shift in government focus to renewable energy.

The stable outlook is premised on TNB maintaining its credit profile over the next 12 to 18 months and that the impact of the implementation of MESI 2.0 on TNB’s credit profile is well within MARC’s expectation.