TNB WESTERN ENERGY BERHAD - 2020 |
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| Report ID | 605250 | Popularity | 776 views 117 downloads | |||||
| Report Date | Sep 2020 | Product | ||||||
| Company / Issuer | TNB Western Energy Berhad | Sector | Infrastructure & Utilities - Power | |||||
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| Rationale |
MARC has affirmed its AAAIS rating on TNB Western Energy Berhad’s (TNB Western) sukuk of up to RM4.0 billion with a stable outlook. It has an outstanding sukuk of RM3.6 billion as of end-June 2020. TNB Western is the funding vehicle of TNB Manjung Five Sdn Bhd which was established to design, construct, own, operate and maintain a 1,000MW ultra-supercritical coal-fired power plant in Manjung, Perak under a 25-year power purchase agreement (PPA) with Tenaga Nasional Berhad (TNB). TNB Manjung Five, in turn, is 100%-owned by TNB. The rating and outlook of TNB Western are equalised with TNB’s corporate credit rating of AAA/stable on the strength of TNB’s unconditional and irrevocable rolling guarantee to fund shortfalls in the finance service account (FSA) and undertaking to maintain full ownership of TNB Western and TNB Manjung Five for the tenure of the sukuk. The substantial operational and financial linkages between the entities further underpin the rating equalisation. Consequently, any change to TNB’s credit profile or the ownership of the power plant could impact the rating. TNB’s strong credit profile is underpinned by its monopoly in strategically important electricity transmission and distribution assets and its strong financial standing. In 2019, TNB Manjung Five recorded energy payments of RM973.5 million, approximately 19.9% lower than budgeted due to higher heat rate. Steam leakages at the high-pressure turbine bypass valves that caused the higher heat rate have been rectified and the cost incurred were adequately covered by the existing latent defect warranty. TNB Manjung Five also received capacity payments (CP) of RM291.0 million, about 2.9% lower than budgeted as its unplanned outage rate (UOR) of 8.3% exceeded the unplanned outage limit (UOL) of 8.0%. The higher UOR was mainly caused by damaged draft fan blades due to its lower specifications. The draft fan blade issue worsened in 2020 and caused the power plant to incur higher UOR in May, June and July 2020. In order to permanently resolve the issue, the power plant plans to upgrade its fan blades by February 2021. Until the upgrade is completed, the plant will be operating below its capacity and the issue is expected to continue affecting the plant’s capacity payments in 2020. In 2019, TNB Manjung Five registered pre-tax losses of RM487.4 million (2018: pre-tax profit of RM138.2 million) mainly due to provision for impairment on a subsidiary of RM478.8 million which was related to the plant’s operational issue. The adjusted CFO (including finance lease income) decreased to RM255.7 million (2018: RM313.1 million) but remained sufficient to meet its debt servicing with CFO interest coverage of 1.25x. Based on cash flow projections, its projected minimum and average forward-looking finance service cover ratio (FSCR) stand at 0.70x and 1.19x. In the event of insufficient funds in the FSA to meet sukuk obligations, TNB will fund the shortage as per its rolling guarantee. Major Rating Factors Strengths
Challenge/Risk
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