MALAKOFF POWER BERHAD - 2021 |
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| Report ID | 60538900425 | Popularity | 711 views 94 downloads | |||||
| Report Date | Dec 2021 | Product | ||||||
| Company / Issuer | Malakoff Power Bhd | Sector | Infrastructure & Utilities - Power | |||||
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| Rationale |
Rating action MARC has affirmed its AA-IS rating on Malakoff Power Berhad’s (MPower) outstanding RM2.93 billion Sukuk Murabahah. The rating outlook is stable. Rationale MPower is the operations and maintenance (O&M) operator of its parent Malakoff Corporation Berhad’s (Malakoff) majority-owned domestic independent power producers (IPP). MARC’s rating approach considers the consolidated credit profile of MPower and 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 its explicit Kafalah guarantee in favour of MPower’s sukukholders. The affirmed rating is underpinned 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). The rating also considers the strong operational track record of Malakoff’s domestic IPPs, which have in general met PPA requirements. Moderating the rating is the high reliance on residual cash flows from two of Malakoff’s IPPs, Tanjung Bin Power Sdn Bhd (TBP) and Segari Energy Ventures Sdn Bhd (SEV). In 1H2021, Malakoff received capacity payments (CP) of RM1,062.1 million in line with expectations (1H2020: RM1,033.2 million) as its key IPPs met PPA requirements. The group was able to fully pass through its fuel costs to TNB. However, energy payments (EP) declined to RM1,369.1 million (1H2020: RM1,729.4 million) largely due to lower electricity demand during the period. Group leverage position improved slightly, with debt-to-equity (DE) ratio standing at 1.65x following the scheduled repayments of group debt. We expect Malakoff’s leverage position to improve as repayments on outstanding borrowings are expected to exceed potential new borrowings; DE ratio will likely fall below 1.5x over the next three years. For the next one-year period, the group is scheduled to repay RM1.4 billion, while any new capital commitments will be funded by internal cash and/or borrowings. As an O&M operator, MPower’s revenue generation depends on the utilisation level of the power plants. MPower’s revenue in 1H2021 declined to RM157.0 million (1H2020: RM170.4 million) as lower electricity output from its managed power plants during movement control order (MCO) periods in January and June 2021 resulted in lower variable O&M payments. The company recorded small pre-tax profit of RM2.5 million. Cash flow from operations (CFO) was recorded at RM338.1 million, supported by a RM334.7 million repayment of its inter-company loan to holding company, Malakoff. Its cash and bank balances (including investments) remained healthy at RM624.8 million as at end-June 2021 and is sufficient to meet its upcoming sukuk repayment of RM500.0 million on December 17, 2021. Rating outlook The stable outlook incorporates MARC’s expectation that Malakoff’s power generating subsidiaries will continue delivering satisfactory operational performance. Rating trajectory Upside scenario A rating upgrade could be considered in the event of significant improvement in the group’s cash flow coverage and leverage position. Downward scenario The rating could be lowered if the performance of Malakoff’s power generating subsidiaries deteriorates to the extent that the group’s liquidity position and ability to meet the sukuk obligations are materially affected. Key strengths
Key risks
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