Rationale     
The rating affirmation continues to reflect the credit strength of the Tanjung Bin O&M’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. Based on this, as well as the operational and financial linkages between the issuer and its parent, MARC has applied a full credit substitution approach to Tanjung Bin O&M’s credit risk assessment with MPower’s senior credit of AA-/Stable serving as the rating floor. 

The rating incorporates the predictable cash flow that Tanjung Bin O&M generates as the operations and maintenance (O&M) services provider of the 2,100MW power plant owned by sister company Tanjung Bin Power Sdn Bhd (TBP), a subsidiary of Malakoff Corporation Berhad (Malakoff), which in turn is the parent of MPower. The partial transfer of operations to MPower via a sub-operations and maintenance agreement (sub-OMA) mitigates operational risk at the TBP plant. The OMA and sub-OMA are coterminous with the 25-year power purchase agreement (PPA) between TBP and Tenaga Nasional Berhad (TNB, AAA/Stable).

Tanjung Bin O&M mainly derives its revenue from fixed and variable operating fees which are mainly based on the TBP plant’s net electricity output. In 1H2021, revenue was lower by 8.1% y-o-y to RM159.1 million mainly due to the 12.4% y-o-y decline in the TBP plant’s electricity output which was attributed to 68 days of planned outages for overhaul work on two generating units. Following higher expenses incurred from overhaul work, Tanjung Bin O&M recorded pre-tax loss of RM30.6 million. In 1H2021, cash flow from operations (CFO) stood at RM70.9 million with CFO interest coverage of 9.25x.

In 2022, the longer scheduled outages of 138 days (2021: 83 days) at the TBP plant for scheduled maintenance and inspections would impact operating performance for the year. Any liquidity risk is mitigated by Tanjung Bin O&M’s strong cash balance of RM252.5 million as at end-June 2021.

In terms of MPower’s performance, revenue generation depends on the utilisation level of the power plants that are majority-owned by Malakoff, for which it undertakes the O&M. MPower also receives dividend and principal  redemption  from  its holding  of redeemable preference shares (RPS) issued by some of  these  power plants. MPower’s revenue in 1H2021 declined to RM157.0 million as lower output at Malakoff’s gas plants during the movement control order (MCO) periods between January and June 2021 resulted in lower variable O&M payments. As a result, the company recorded small pre-tax profit of RM2.5 million.