JIMAH EAST POWER SDN BHD - 2022 |
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| Report ID | 6053890046929 | Popularity | 616 views 146 downloads | |||||
| Report Date | Oct 2022 | Product | ||||||
| Company / Issuer | Jimah East Power Sdn Bhd (JEP) | Sector | Infrastructure & Utilities - Power | |||||
| Price (RM) |
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| Rationale |
Rating action MARC Ratings has affirmed its AA-IS rating on Jimah East Power Sdn Bhd’s (JEP) outstanding RM8.72 billion Sukuk Murabahah. The rating outlook is stable. Rationale The rating affirmation is underpinned by 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 incorporates the operational and financial linkages with TNB, which has an indirect 70%-stake in JEP, and the credit strength of the 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 1H2022, JEP recorded capacity payments (CP) of RM480.3 million, 9.6% lower than budgeted due to the unplanned outage rate (UOR) of Unit 1 exceeding the PPA-stipulated unplanned outage limits (UOL) following boiler tube leakages in April and June 2022. JEP had previously experienced a similar incident in 2021, which resulted in CPs being 0.4% lower than the budgeted in 2021. Rectification works have been completed, with the costs mostly borne by the engineering, procurement and construction (EPC) contractor under the post-construction warranty. We understand that JEP is in discussion with the EPC contractor for a permanent solution which is expected to be conducted during a major planned outage in 2024. Meanwhile, UOR of Unit 2 remains below the UOL for the period under review. JEP recorded energy payments (EP) of RM1,991.0 million and RM1,096.6 million in 2021 and 1H2022. It managed to fully pass through its fuel costs to TNB due to positive variance between applicable coal price (ACP) (used for the calculation of EP) and average coal cost given the uptrend of commodity prices. This offset the impact from the plant’s higher-than-PPA-stipulated heat rate during the period which was affected mainly by coal quality issues. JEP has been addressing this matter with fuel supplier, TNB Fuel Services Sdn Bhd (TNBFS); efforts include incorporating additional criteria in the coal procurement process. JEP’s revenue in 1Q2022 stood at RM917.4 million, about 31.2% of forecast revenue in 2022. Revenue is expected to be higher for the year as coal prices remain elevated. Its liquidity position, as reflected by cash and bank balances of RM699.4 million as at end-July 2022, is sufficient to cover the next profit payment and principal repayment of RM411.2 million in December 2022. Based on the cash flow projections, minimum and average pre-distribution finance service coverage ratio (FSCR) with cash stood at 1.43x and 1.61x. The cash flows can withstand moderate performance breaches of additional 2% heat rate degradation and 2% outage rate throughout the sukuk tenure. Rating outlook The stable outlook assumes continuous support from sponsors, JEP’s plant performance is broadly in line with projections, and 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. A rating upgrade can be considered if the plant demonstrates strong operating performance to build up and maintain a strong liquidity position, and provide strong debt service coverage. 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, and support from the sponsors weaken. Key strengths
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