CREDIT ANALYSIS REPORT

TNB WESTERN ENERGY BERHAD - 2021

Report ID 6053890046 Popularity 82 views 14 downloads 
Report Date Oct 2021 Product  
Company / Issuer TNB Western Energy Berhad Sector Infrastructure & Utilities - Power
Price (RM)
Normal: RM500.00        
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Rationale
Rating action     
MARC has affirmed its AAAIS rating on TNB Western Energy Berhad’s (TNB Western) outstanding sukuk of RM3.7 billion with a stable outlook.

TNB Western is the funding vehicle of TNB Manjung Five Sdn Bhd, a 100% indirect-owned subsidiary of Tenaga Nasional Berhad (TNB). TNB Manjung Five operates and maintains a 1,000MW ultra-supercritical coal-fired power plant in Manjung, Perak under a 25-year power purchase agreement (PPA) with TNB.

Rationale     
The rating and outlook of TNB Western are equalised with TNB’s corporate credit rating of AAA/stable on the strength of TNB’s unconditional and irrevocable rolling guarantee to fund shortfalls in the finance service account (FSA) and maintain full ownership (directly/indirectly) of TNB Western and TNB Manjung Five throughout the tenure of the sukuk. The substantial operational and financial linkages between the entities further underpin the rating equalisation. These factors underscore TNB Western’s rating despite the recurring plant operational issues that have heightened cash flow protection risk. 

Since 2019, problems at the power plant’s fan blades system have resulted in a substantially higher unplanned outage rate (UOR) of 39% as at end-2020 compared to the PPA-prescribed unplanned outage limit (UOL) of 6%. TNB Manjung Five had upgraded the fan blades in February 2021 and is expected to complete rectification work on its air heater by October 2021. 

Due to the high UOR in 2020, TNB Manjung Five received lower-than-budgeted capacity payments (CP) of RM154.4 million (2019: RM291.0 million). Accordingly, the plant’s electricity dispatch also fell in 2020, which resulted in a 51.3% decline in energy payment (EP) receipts to RM522.6 million (2019: RM 1,073.4 million). 

Pre-tax losses in 2020 widened to RM134.6 million from RM8.6 million in 2019 (excluding the one-off RM478.8 million asset impairment in 2019). Based on cash flow projections, its projected three-year average forward-looking finance service cover ratio (FSCR) would stand at 1.98x with minimum FSCR of 1.24x in 2023. Our sensitivity analysis shows that TNB Manjung Five would be able to withstand mild stress scenarios such as a 5% reduction in CP p.a before the minimum FSCR falls below 1.00x. Any shortfalls in cash will need to be covered by TNB under the rolling guarantee or from its revolving credit facilities, which are currently fully drawn down to meet its previous year’s sukuk obligations.

Rating trajectory

Downward scenario     
Downward rating pressure would arise in the event of weakening in TNB’s credit profile and/or TNB’s support to TNB Western.

Key strengths
  • Rolling guarantee support from ultimate parent and offtaker TNB
  • Operational and financial linkages with TNB
Key risks
  • Plant operational performance weighed down by recurring technical issues


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