TTM SUKUK BHD - 2021 |
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| Report ID | 60538900363 | Popularity | 731 views 46 downloads | |||||
| Report Date | Oct 2021 | Product | ||||||
| Company / Issuer | TTM Sukuk Berhad | Sector | Infrastructure & Utilities - Oil & Gas | |||||
| Price (RM) |
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| Rationale |
Rating action MARC has affirmed its AAAIS rating on TTM Sukuk Berhad’s (TTM SPV) RM600.0 million Sukuk Murabahah, with a stable outlook. Rationale 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 through 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 of Trans Thai-Malaysia (Thailand) Ltd (TTMT) for the construction of two additional gas pipelines to transport natural gas from the Malaysia-Thailand Joint Development Area (JDA) in the Gulf of Thailand to the industrial city of Rayong in Thailand (TTM Phase II). TTMT is a 50:50 joint-venture between project sponsors, 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 foreign currency rating. We view that PETRONAS has a strong strategic and reputational incentive to provide ringgit liquidity in the event of any transfer and 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 fell 2.1% y-o-y in 2020 to US$18.6 million on lower UCRC and gas sales volume. Cash flow generation during the year was adequate to meet its debt service obligation as evidenced by its annual finance service coverage ratio (AFSCR) of 1.17x as at end-2020 (2019: 1.24x), which remained above the covenant of 1.10x. In 1H2021, revenue held steady at US$8.2 million despite the lower UCRC due to notably higher gas sales volume of 106,555 mmscf (1H2020: 88,178 mmscf). UCRC, which is adjusted every June and when required if there are changes to PTT’s capacity reservations, has been set higher at US$141.49/mmscf for the June-December 2021 period. The pricing mechanism is also constructed to cover debt service, operating costs and return on equity. At TTMT’s level, revenue was up 1.0% y-o-y to US$49.5 million in 1H2021 while operating cash flow (CFO) was US$48.5 million (1H2020: US$52.2 million), providing an 11.1x cover on interest. The company’s overall debt balance continues to trend downwards as it pares down its borrowings which stood at US$172.4 million as at end-June 2021, down from US$249.1 million in 2020. TTMT’s debt-to-equity (DE) ratio also improved to 0.79x as at end-June 2021 (end-June 2020: 0.92x) benefitting from the lower borrowings and stronger shareholders’ funds. Rating outlook The stable outlook reflects MARC’s expectation that TTMT will maintain its satisfactory operating performance and prudent financial management, particularly in maintaining the DE ratio and AFSCR within the covenanted 2.33x and 1.10x. We also expect project sponsors to remain committed to the project. Rating trajectory Upside scenario No further upgrade as the rating is already the highest on MARC’s rating scale. Downside scenario Any significant weakness in TTMT’s credit metrics and/or decline in support from the project sponsors could exert pressure on the rating. Key strengths
Key risk
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