MARC affirms the AA-_IS rating on Kimanis Power Sdn Bhd's (KPSB) RM1,160.0 million Sukuk Programme (sukuk) with a stable outlook. 

KPSB owns and operates the 285-megawatt (MW) combined-cycle gas-fired power plant at Kimanis Bay, Sabah. The rating affirmation factors in the favourable terms of KPSB’s 21-year power purchase agreement (PPA) under which the demand risk is allocated to the offtaker Sabah Electricity Sdn Bhd (SESB), an 83.0%-owned subsidiary of Tenaga Nasional Berhad (TNB) (AAA/Stable). The rating also incorporates the credit strength of PETRONAS Gas Berhad (PGB), a major shareholder in KPSB, and the mitigation of gas supply risk through the long-term gas sale agreement that KPSB has with PETRONAS. 

KPSB plant’s performance continued to remain well within the PPA requirement with a cumulative unplanned outage rate (UOR) of 1.5% against the PPA’s limit of 4.0% and contract average availability target (CAAT) for the second contract year block (2017-2019) of 94.49% against the PPA requirement of above 93.08%. Similarly, the plant managed to fully pass through its fuel cost as the heat rates were within the PPA requirement. 

For 2019, KPSB received full capacity payments of RM202.4 million. It recorded pre-tax profit of RM86.5 million (2018: RM98.2 million) on excluding unrealised gains; the lower profit was due to higher administrative expenses incurred last year. Cash flow from operations (CFO) remained strong at RM174.2 million with a healthy cash balance of RM186.9 million. As at end-January 2020, KPSB's designated accounts had an outstanding balance of RM163.1 million, which is sufficient to meet its upcoming repayments of RM70.0 million for Series 1 in August 2020 and RM10.0 million for Series 2 each in June and December 2020. 

KPSB’s cash flow projections show adequate cash flow to meet sukuk obligations with minimum and average pre-distribution finance service cover ratios (FSCR) of 1.51x and 3.14x. Under the sensitivity analysis, KPSB would be able to comply with the minimum FSCR with cash of 1.25x throughout the sukuk tenure. The sensitised case assumes heat rate degradation, higher plant unavailability and an increase in operating costs. 

The stable outlook is premised on MARC’s expectation that KPSB will maintain its plant performance and cash flow generation. Should the plant continue to achieve key performance metrics that are well within the PPA requirements, the outlook and/or rating could be upgraded. An unexpected weakness in plant performance that would impact KPSB’s debt servicing ability or a change to SESB’s ownership structure and credit profile could lead to rating pressures.