CREDIT ANALYSIS REPORT

JIMAH EAST POWER SDN BHD - 2021

Report ID 60538900453 Popularity 55 views 7 downloads 
Report Date Dec 2021 Product  
Company / Issuer Jimah East Power Sdn Bhd Sector Infrastructure & Utilities - Power
Price (RM)
Normal: RM500.00        
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Rationale
Rating action     
MARC has affirmed its AA-IS rating on Jimah East Power Sdn Bhd’s (JEP) outstanding RM8.82 billion Sukuk Murabahah. The rating outlook is stable

Rationale     
The affirmed rating incorporates JEP’s predictable cash flows from its 2x1,000-megawatt (MW) ultra-supercritical coal plant under a 25-year power purchase agreement (PPA) with Tenaga Nasional Berhad (TNB). The rating also reflects the operational and financial linkages with TNB, which has an indirect 70%-stake in JEP, and the credit strength of project sponsors, namely TNB, Mitsui & Co., Ltd (Mitsui) (15.0%) and The Chugoku Electric Power Co., Inc (Chugoku) (15.0%). The rating is moderated by risks associated with the plant’s performance.

In 1H2021, JEP received 5.3% lower capacity payments (CP) to RM502.2 million compared to the budgeted amount. The lower-than-budgeted CP was due to one of the plant’s two units (Unit 1) recording an unplanned outage rate (UOR) which exceeded the PPA’s unplanned outage limits (UOL) of 6% and 8% between April and June 2021. Rectification work on Unit 1 has been completed and costs incurred were mostly covered by the post-construction warranty provided by the engineering, procurement and construction (EPC) consortium. 

JEP recorded an energy payment (EP) of RM728.4 million and was able to fully pass through its fuel costs to TNB during the period due to positive variance between the applicable coal price (ACP) (used for the calculation of EP) and average coal cost. This offset the impact of Unit 1’s higher heat rate, which spiked in June 2021 because of quality issues with certain coal shipments. JEP has been addressing this matter, resulting in the heat rate improving since August although it remains slightly higher than PPA requirements.

Given the aforementioned issues, JEP recorded revenue of RM1,346.4 million in 1H2021 which was about 43.8% of full year forecast. Cash flow from operations (CFO) stood at RM458.8 million, with a moderate CFO interest coverage of 1.64x. Its liquidity position remained strong, with cash and bank balances of RM881.4 million as at December 5, 2021, more than sufficient to cover the next profit payment and principal repayment totalling RM364.6 million in June 2022. Under base case projections, JEP’s finance service ability remains adequate with minimum and average pre-distribution finance service cover ratios (FSCR) with cash standing at 1.40x and 1.67x.

Rating outlook     
The stable outlook assumes that JEP will continue to receive timely PPA payments on the back of plant performance that is broadly in line with projections and that it will maintain sufficient liquidity buffers to meet its financial obligations.

Rating trajectory

Upside scenario     
Further upgrades from the current rating are not expected in the near to medium term as operational performance and cash flow coverage are unlikely to improve significantly beyond current levels during this period. A rating upgrade can be considered if the plant demonstrates strong operating performance to build up and maintain a strong liquidity position.

Downside scenario     
The rating could face downward pressure should operating performance weaken to the extent that cash buffers are depleted without mitigating measures being put in place to shore up JEP’s liquidity position.

Key strengths
Predictable cash flow stream provided by availability-based capacity payments
Strong financial profile of project sponsors

Key risks
Technical issues weighing on plant performance


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