TTM SUKUK BERHAD - 2020 |
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| Report ID | 605325 | Popularity | 1091 views 33 downloads | |||||
| Report Date | Nov 2020 | Product | ||||||
| Company / Issuer | TTM Sukuk Berhad | Sector | Infrastructure & Utilities - Oil & Gas | |||||
| Price (RM) |
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| Rationale |
MARC has affirmed its AAAIS rating on TTM Sukuk Berhad’s (TTM SPV) RM600.0 million Sukuk Murabahah, with a stable outlook. The rating reflects MARC’s assessment of a very high likelihood of support for Trans Thailand-Malaysia (TTM), a strategically important project involving two governments from project sponsors, Petroliam Nasional Berhad (PETRONAS) and PTT Public Company Ltd (PTT). PETRONAS and PTT are the national oil companies of Malaysia and Thailand. TTM SPV is the funding vehicle for the second phase of the TTM project (TTM Phase II), consisting of two gas pipelines between the Malaysia-Thailand Joint Development Area (JDA) and the industrial city of Rayong in Thailand. TTM SPV is wholly owned by Trans Thai-Malaysia (Thailand) Ltd (TTMT), a 50:50 joint-venture company between PETRONAS and PTT. The rating also considers the credit linkages in the form of cross-acceleration and cross-default provisions between the rated sukuk and the term loan taken to finance the first phase of the TTM project (TTM Phase I). PTT and TTMT are domiciled in Thailand, and TTM Phase II’s revenue is in US dollars or its Thai baht equivalent. This notwithstanding, MARC does not consider the rating to be constrained by Thailand’s sovereign rating. This assessment is based on the rating agency’s view that PETRONAS will have a strong strategic and reputational incentive to provide ringgit liquidity should there be any transfer or convertibility issues arising from any foreign exchange restrictions imposed by the Thai government. PETRONAS has a senior unsecured rating of AAA/Stable from MARC, based on publicly available information. TTMT’s credit profile is supported by its stable and predictable cash flow, underpinned by its long-term service agreements with PTT and PETRONAS, and its cost-plus tariff structure that ensures a relatively stable profit margin. Its unit capacity reservation charge (UCRC) - used to derive its capacity reservation charges/revenue – is designed to cover its operating costs and finance service obligations, while providing adequate shareholders’ return. TTM Phase II’s revenue rose 2.2% y-o-y in 2019 to US$19.0 million on higher UCRC and gas sales volume. The better business performance last year also drove TTM Phase II’s annual finance service coverage ratio (AFSCR) higher to 1.24x, above the covenanted 1.1x. Revenue stood steady at US$9.3 million in 1H2020 compared to the corresponding period last year, supported by higher UCRC to offset lower sales volume. UCRC, which is adjusted every June and when required if there are changes to PTT’s capacity reservations, has been set lower at US$135.19/mmscf for the period June 2020 – December 2020. However, MARC does not expect this to adversely affect TTM Phase II’s debt service capacity as the pricing mechanism is constructed to cover debt service, operating costs and a return on equity. At TTMT’s level, revenue was up 1.2% y-o-y to US$49.1 million in 1H2020, while operating cash flow improved to US$52.2 million over the same period (1H2019: US$47.4 million) to provide a 10.2x cover on interest. Cash balance also stood higher at US$92.2 million as at end-June 2020, partly because of lower dividend distribution during the period. The company’s overall debt balance continues to trend downwards as it pares down its borrowings which stood at US$249.1 million as at end-June 2020, down from US$271.8 million a year ago. TTMT’s debt-to-equity (DE) ratio also improved to 0.92x as at end-June 2020 (end-June 2019: 0.99x) benefitting from the lower borrowings and stronger shareholders’ funds. The stable outlook reflects MARC’s expectation that TTMT will maintain and further improve on its satisfactory operating performance and that the project sponsors remain committed to the project. Any significant weakness in TTMT’s credit metrics and/or decline in support from the project sponsors could exert pressure on the rating. Major Rating Factors Strengths
Challenge/Risk
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