CREDIT ANALYSIS REPORT

RANHILL POWERTRON II SDN BHD - 2020

Report ID 60529 Popularity 1321 views 76 downloads 
Report Date Jun 2020 Product  
Company / Issuer Ranhill Powertron II Sdn Bhd Sector Infrastructure & Utilities - Power
Price (RM)
Normal: RM500.00        
  Add to Cart
Rationale
MARC has affirmed its ratings on Ranhill Powertron II Sdn Bhd’s (RPII) RM140.0 million outstanding Islamic Medium-Term Notes (IMTN) at AAIS and RM350.0 million outstanding guaranteed IMTN at AAAIS(fg). The outlook on the ratings is stable

RPII owns and operates the 190-MW combined cycle gas turbine (CCGT) Rugading Power Station in Sabah under a 21-year Power Purchase Agreement (PPA) with Sabah Electricity Sdn Bhd (SESB), an 83%-owned subsidiary of Tenaga Nasional Berhad (TNB). The AAAIS(fg) rating on guaranteed IMTN reflects the unconditional and irrevocable Kafalah guarantee provided by Danajamin Nasional Berhad (Danajamin), on which MARC has issued an insurer financial strength rating and a long-term counterparty credit rating of AAA/stable. 

The standalone AAIS rating reflects favourable terms under the PPA which allocate demand risk and fuel price risk to the offtaker, SESB. The rating also incorporates the power plant’s commendable operating performance that has been in compliance with the minimum requirements under the PPA. 

Upon completion of the third contract year block (2017–2019), RPII achieved its contracted average availability target (CAAT) of 94.2% for this year block, which was slightly higher than the PPA minimum requirement of 94.0%. Hence, there is no penalty payable to SESB. In 2019, the plant’s unplanned outage rate (UOR) of 2.85% was well within the unplanned outage limit (UOL) of 4.0%. 

In 2019, RPII received full capacity payments (CP) of RM97.3 million and achieved full fuel cost pass-through on meeting the heat rate requirement. The company recorded higher energy payments (EP) of RM105.4 million (2018: RM93.6 million) as it utilised higher distillate fuel after experiencing a series of gas curtailments due to scheduled maintenance at Sabah Gas Terminal. 

Cash flow from operations (CFO) was higher at RM104.4 million (2018: RM46.5 million) mainly due to receipt of a delayed payment from the offtaker in 2018 amounting to RM21.3 million. In addition, the CFO in 2018 was affected by a one-off advance payment of RM13.5 million to General Electric Company in 2018. RPII’s liquidity improved with cash and bank balances increasing to RM112.1 million (2018: RM87.6 million).

Based on cash flow projections, RPII’s minimum and average pre-distribution finance service cover ratios (FSCR) stand at 2.36x and 2.68x. The capacity rate financial (CRF) will reduce to RM23.80/kW/month from RM36.50/kW/month beginning 2023 onwards, after the non-guaranteed IMTN is fully repaid and when the 
guaranteed IMTN starts its repayments. Any concerns on cash flow coverage following the step-down of the CRF will be mitigated by RPII’s liquidity position. Notwithstanding this, the interest of the sukukholders of the guaranteed IMTN is protected under the Kafalah guarantee. 

The stable outlook on the non-guaranteed notes reflects MARC’s expectation that RPII’s power plant will continue to maintain its operational performance and that the company will continue to adhere to prudent financial management.

Major Rating Factors

Strengths
Demand risk and fuel price risk are allocated to offtaker;
Satisfactory cash flow generation from power plant operation; and
Healthy financial service cover ratio.

Challenge/Risk
Maintain healthy liquidity level given step-down in the capacity rate financial occurs from 2023 onwards. 

Related