Kapar Energy Ventures Sdn Bhd - 2022 |
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| Report ID | 6053890046919 | Popularity | 706 views 79 downloads | |||||
| Report Date | Oct 2022 | Product | ||||||
| Company / Issuer | Kapar Energy Ventures Sdn Bhd | Sector | Infrastructure & Utilities - Power | |||||
| Price (RM) |
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| Rationale |
Rating action MARC Ratings has affirmed its AA+IS rating on Kapar Energy Ventures Sdn Bhd’s (KEV) outstanding RM580.0 million Sukuk Ijarah. Concurrently, the outlook has been revised to stable from negative. KEV owns and operates the Kapar Power Station (KPS), which consists of three generating facilities (GF) with a combined nominal capacity of 2,200MW. Rationale The affirmed rating benefits from a two-notch support uplift from KEV’s standalone rating of AA- to reflect MARC Ratings’ expectation of a high probability of parental support from Tenaga Nasional Berhad (TNB) (AAA/stable), which has 60.0% ownership in KEV through its wholly-owned subsidiary TNB Power Generation Sdn Bhd (TPGSB). TNB has demonstrated extensive operational and financial support to KEV, most recently through the subscription of redeemable preference shares (RPS) issued on July 1, 2022, to help fully redeem its outstanding redeemable unsecured loan stocks (RULS) principal of RM768.6 million, as well as through the conversion of unplanned outage to planned outage. The outlook revision reflects the improvement in KEV’s cash flow protection following better operational metrics recorded by its power plant. Over the last two years, the negative trend of unplanned outage rates (UOR) at KEV’s GFs has reversed. The reversal was partly supported by outage conversions, with the UOR reset to zero at the start of KEV’s sixth contract year block (2022-2024). This has provided additional outage headroom for the plant, though we note that there were no major outages at its GFs during 1H2022. The foregoing improvement has resulted in variances between actual and budgeted capacity payments (CP) narrowing substantially in the last two years (2020: RM31.6 million, 2021: RM35.8 million) compared to 2019 (RM82.6 million). In 1H2022, KEV received full CP. We note that KEV has managed to resolve the majority of the technical issues encountered during those years, with the exception being damaged turbine blades at GF3’s second unit (Unit 6). Permanent rectification work to restore Unit 6’s capacity to 500MW is expected to be carried out during a scheduled outage in September 2023; in the meantime, the unit will continue operating at a lower capacity of 440MW and incur marginal CP reductions of around RM3.0 million p.a. KEV was able to fully pass through its fuel costs in 1H2022 and 2021 due to positive variance between applicable coal price (ACP) (used for the calculation of energy payments (EP)) and average coal cost given the uptrend of the coal prices during the period. This offset the higher-than-PPA-stipulated heat rate of GF2. The company recorded pre-tax profit of RM59.5 million in 2021 compared to pre-tax loss of RM67.6 million in 2020. In line with the earnings improvement, cash flow from operations (CFO) increased to RM275.3 million (2020: RM160.0 million). KEV’s designated accounts balances stood at RM281.5 million as at end-July 2022, more than sufficient to meet its upcoming semi-annual sukuk profit obligation of RM15.0 million in January 2023. Based on 2022-2026 financial projections, the minimum and average distribution finance service coverage ratios (FSCR) stand at 2.45x and 2.86x, higher than the previous review’s 1.69x and 2.18x due to higher liquidity and absence of RULS interest payments. Under our sensitivity analysis, KEV will be able to maintain FSCRs above the covenanted 1.30x under moderate stress scenarios such as increases in operating and capital expenditures by 10.0% and 15.0%, CP reduction of 6.0%, and EP reduction of 3.0%. Rating trajectory Downside scenario The rating could face downward pressure should operating performance weaken to the extent that cash buffers deplete without mitigating measures being put in place to shore up KEV’s liquidity position. Key strengths
Key risks
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