CREDIT ANALYSIS REPORT

TNB NORTHERN ENERGY BERHAD - 2021

Report ID 6053890032 Popularity 84 views 24 downloads 
Report Date Sep 2021 Product  
Company / Issuer TNB Northern Energy Bhd Sector Infrastructure & Utilities - Power
Price (RM)
Normal: RM500.00        
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Rationale
Rating action     
MARC has affirmed its AAAIS rating on TNB Northern Energy Berhad’s (TNB Northern) outstanding sukuk of RM1.35 billion with a stable outlook. 

Rationale     
The rating is equalised to Tenaga Nasional Berhad’s (TNB) corporate credit rating of AAA/stable from MARC. The rating equalisation is based on our view on the strength of the financial commitment TNB has extended through an unconditional and irrevocable rolling guarantee to fund shortfalls in the finance service account and an undertaking to maintain full ownership in TNB Prai Sdn Bhd and its subsidiary TNB Northern, which is the funding vehicle for TNB Prai. The rating approach is also underpinned by the substantial operational and financial linkages between these entities. TNB Prai developed and operates the 1,071.43-MW combined-cycle gas turbine (CCGT) power plant in Seberang Perai Tengah, Penang under a 21-year power purchase agreement (PPA) with TNB. 

The rolling unplanned outage rate (UOR) has been improving since November 2020 in the absence of major outages. As at end-May 2021, the rolling UOR of Unit 20 stood at 4.19%. In 2020, the power plant had been affected by some operational issues resulting in 3.6% lower capacity payments of RM194.4 million against forecast, mainly due to breaches in the unplanned outage limits at one of its two generating units, Unit 20 which led to the increase in the rolling UOR to 6.51% in October 2020 (December 2019: 4.15%).

Energy payments received in 2020 were 33.0% lower than the budgeted amount of RM1,893.0 million due to lower gas price in line with lower global oil prices. As in previous years, TNB Prai was unable to fully pass through its fuel costs in 2020 as the plant’s heat rates continued to exceed PPA-specified requirements. As the energy fuel payment was 1.8% lower than the total fuel cost incurred of RM1,215.8 million, the plant was unable to pass through RM21.6 million in fuel cost. 

TNB Prai recorded 2.2% lower revenue of RM1,469.1 million in 2020. Cash flow from operations (CFO) was moderate at RM45.5 million. Based on the revised cash flow projections, TNB Prai’s minimum and average finance service cover ratios (FSCR) with cash would stand at 0.27x and 1.76x. FSCR is expected to fall below 1.0x in 2028 and 2035 due to a major scheduled maintenance programme; any liquidity shortfalls are expected to be covered by the rolling guarantee. The balance in the designated accounts of RM144.9 million as at June 30, 2021 is more than sufficient to meet the upcoming semi-annual sukuk profit and principal obligations of RM60.0 million in November 2021.

Rating outlook     
The stable outlook reflects TNB’s stable outlook which is based on its strong and steady business and financial profile.

Rating trajectory 

Downside scenario     
Rating pressure would arise in the event of significant deterioration in TNB’s credit profile and/or a decline in TNB’s support to TNB Northern.

Key strengths
Rolling guarantee support from ultimate parent and offtaker TNB 
Operational and financial linkages with TNB

Key risk
Operational issues at the power plant 

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