TANJUNG BIN O&M BERHAD - 2020 |
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| Report ID | 605346 | Popularity | 743 views 44 downloads | |||||
| Report Date | Dec 2020 | Product | ||||||
| Company / Issuer | Tanjung Bin O&M Bhd | Sector | Infrastructure & Utilities - Power | |||||
| Price (RM) |
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| Rationale |
MARC has affirmed its AA-IS rating on Tanjung Bin O&M Berhad’s RM470.0 million Islamic Securities (Sukuk Wakalah) with a stable outlook. The rating reflects the credit strength of the issuer’s parent, Malakoff Power Berhad (MPower), which has provided an unconditional and irrevocable undertaking in the form of cash deficiency support to top up any shortfall in the finance service reserve account (FSRA) for the Sukuk Wakalah. MARC has applied a full credit substitution approach on Tanjung Bin O&M’s credit risk assessment with MPower’s senior credit rating of AA-/Stable serving as the rating floor. The rating is supported by the fairly predictable cash flow that Tanjung Bin O&M generates as the operations and maintenance services (O&M) provider of the 2,100MW power plant owned by sister company Tanjung Bin Power Sdn Bhd (TBP), a subsidiary of Malakoff Corporation Berhad (Malakoff), the parent of MPower. The rating also incorporates the partial transfer of operational risks to MPower via a sub-operations and maintenance agreement (sub-OMA). The OMA and sub-OMA are coterminous with the 25-year power purchase agreement between TBP and Tenaga Nasional Berhad (TNB, AAA/Stable). Tanjung Bin O&M’s revenue mainly derives from fixed operating and variable operating fees which are based on the TBP plant’s net electricity output. MARC draws comfort from the fact that the plant is used as a base-load power plant which has priority in demand for electricity dispatches from TNB. During 1H2020, when the plant’s electricity output was affected by the movement control order (MCO), TBP’s electricity output declined slightly by 1.3% y-o-y even though the domestic power industry’s electricity output declined by 8.5% y-o-y. In 1H2020, Tanjung Bin O&M’s revenue declined slightly to RM173.2 million (1H2019: RM177.2 million) due to TBP’s lower electricity output during the MCO. MARC understands that TBP’s electricity output has returned to its pre-MCO level as at June 2020. Pre-tax profit was higher at RM51.7 million (1H2019: RM38.2 million) attributed to lower operating expenses following lower maintenance works at the TBP plant; the plant’s scheduled maintenance outage in 2020 is estimated to be lower at 59 days compared to total scheduled maintenance outage of 178 days in 2019. Cash flow from operations (CFO) was higher at RM40.0 million (1H2019: negative RM11.3 million). Tanjung Bin O&M does not have any sukuk principal repayment in 2020 and had built-up liquidity to meet its future sukuk obligations. Its cash balances in the revenue account and FSRA amounting to RM132.5 million as at end-September 2020 would be sufficient to service its sukuk obligations amounting to RM70.3 million due in July 2021. The cash balance mitigates any risk of liquidity shortfall given the expected higher operating expenses for scheduled maintenance works in 2021 with a total scheduled outage of 99 days. As the O&M operator of Malakoff’s majority-owned domestic power plant, MPower’s revenue generation capacity mainly relies on the utilisation level of the power plants. It also receives dividend and principal redemption from its holding of redeemable preference shares (RPS) issued by some of these power plants. In 1H2020, its revenue declined by 23.0% y-o-y in line with the power plants’ lower electricity output during the MCO period. Coupled with higher operating expenses related to major maintenance work at a power plant, MPower recorded overall pre-tax losses of RM120.9 million (1H2019: pre-tax profit RM71.2 million). MPower’s liquidity was supported by partial repayment of its outstanding amount due from its holding company, Malakoff. Its cash balance increased to RM494.0 million (2019: RM92.4 million). The stable outlook incorporates MARC’s expectation that the TBP power plant will sustain its performance and MPower will maintain its credit profile to support its ability to meet its financial obligations. Any material changes in the credit quality of MPower or TBP would lead to downward rating pressure given the substantial operational and financial linkages between the entities. Major Rating Factors Strengths
Challenges/Risks
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