MALAKOFF POWER BERHAD - 2020 |
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| Report ID | 605349 | Popularity | 875 views 80 downloads | |||||
| Report Date | Dec 2020 | Product | ||||||
| Company / Issuer | Malakoff Power Bhd | Sector | Infrastructure & Utilities - Power | |||||
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| Rationale |
MARC has affirmed its AA-IS rating on Malakoff Power Berhad’s (MPower) RM5.4 billion Sukuk Murabahah with a stable outlook. As at end-June 2020, the amount outstanding under the rated programme was RM3.34 billion. MPower is the operations and maintenance (O&M) operator of its parent company Malakoff Corporation Berhad’s (Malakoff) majority-owned domestic independent power producers (IPP). The rating approach considers the consolidated credit profile of MPower and its parent company Malakoff given the strong operational and financial linkages between them, in particular the common reliance on the residual cash flows from Malakoff’s power plants and the parent company’s explicit Kafalah guarantee in favour of MPower’s sukukholders. The affirmed rating is mainly driven by the predictability of cash flows from Malakoff’s power plants under long-term power purchase agreements (PPA) with Tenaga Nasional Berhad (TNB) (AAA/Stable). MPower’s O&M revenue and dividend income from its holding of redeemable preference shares (RPS) of Tanjung Bin Power Sdn Bhd (TBP) and Segari Energy Ventures Sdn Bhd (SEV) form the repayment sources for the sukuk. Any liquidity shortfalls at MPower is expected to be made up by Malakoff through inter-company loan advances/repayments. The rating is moderated by the group’s high reliance on residual cash flows from the two subsidiaries, TBP and SEV. Lower dispatch demand from TNB during the Movement Control Order (MCO) period led to a 14.4% y-o-y decline in Malakoff’s revenue to RM4,763.0 million in 9M2020. Despite this, most of Malakoff’s power plants exhibited strong operational performance and received full capacity payments (CP) during the period. Malakoff’s CP were relatively stable, amounting to RM1,557.3 million (9M2019: RM1,570.8 million). Pre-tax profit increased by 4.8% to RM370.3 million, mainly due to consolidation of newly acquired subsidiary Alam Flora Sdn Bhd and higher contribution from associate companies following the acquisition of an additional 12% equity stake in co-generation and desalination plants in the Kingdom of Saudi Arabia. Malakoff’s cash flow from operations (CFO) remained healthy at RM1,380.2 million in 9M2020, with CFO interest coverage of 2.49x. Its liquidity was strong with cash balances of RM4.6 billion as at end-September 2020. The group’s leverage position improved to 1.73x following the full repayment of its Macarthur wind farm acquisition loan and principal repayment of TBP’s sukuk. Leverage position is expected to continue improving as MPower repays its scheduled sukuk obligations, while any new debt taken on for planned capex in the near term will be spread out over five years during the construction of the assets. Capex covers equipment replacement and plant improvement work, small-scale renewable energy and waste management projects as well as overseas investments. MPower’s cash generation capacity mainly relies on the utilisation level of the power plants. In 1H2020, MPower’s 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 of RM71.2 million). MPower’s liquidity to meet sukuk obligations was supported by partial repayment of its outstanding amount due from holding company, Malakoff. As at end-June 2020, MPower’s finance service reserve account (FSRA) balance of RM482.5 million is sufficient to meet its upcoming sukuk repayment of RM410.0 million on December 17, 2020. The stable outlook incorporates MARC’s expectation that Malakoff’s power generating subsidiaries will continue delivering satisfactory operational performance. The COVID-19 pandemic is not expected to materially impact the group’s operating performance given the availability-based CP under the PPAs between its domestic IPPs and TNB, which allocate demand risk to the offtaker. Major Rating Factors Strengths • Predictable cash flow generation from various repayment sources; • Strong operational track record of parent company, Malakoff; and • Sound covenants to ensure adequate liquidity coverage. Challenges/Risks • High reliance on cash flows from two key subsidiaries; and • Malakoff group’s high consolidated leverage and low equity base. |
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