Rating action          

MARC Ratings has affirmed its AAA_IS(bg) rating on Ranhill Sabah Energy II Sdn Bhd’s (RSEII) (formerly known as Ranhill Powertron II Sdn Bhd) outstanding RM300.0 million Islamic Medium-Term Notes (IMTN) Programme guaranteed by Bank Pembangunan Malaysia Berhad (BPMB). The rating outlook is stable.

The rating affirmation reflects the unconditional and irrevocable guarantee from BPMB, which carries a financial institution rating of AAA/Stable from MARC Ratings. 

RSEII owns and operates the 190MW combined-cycle gas turbine (CCGT) Rugading Power Station in Sabah under a 21-year power purchase agreement (PPA) with Sabah Electricity Sdn Bhd (SESB). The plant continued to perform well in 2023, maintaining its unplanned outages below the limit of 4% as stipulated in the PPA, allowing it to receive full capacity payments (CP) of RM77.7 million for the year. Heat rate performance was also better than the PPA requirement, enabling full cost pass-through to SESB, with the plant receiving energy payments (EP) of RM114.3 million in 2023. 

RSEII, nevertheless, registered pre-tax loss of RM2.1 million last year due to higher operating costs related to scheduled major maintenance works. Cash flow from operations (CFO), however, remained positive, albeit lower at RM53.6 million (2022: RM75.9 million). RSEII has a healthy liquidity position as at end-April 2024 that includes cash totalling RM109.8 million. Additionally, MARC Ratings believes RSEII will continue to generate sufficient CFO to meet its upcoming principal repayment and interest payment of RM58.2 million, due in June 2024. 

RSEII’s base case minimum and average finance service coverage ratio (FSCR) are projected at 1.58x and 1.73x over the 2024-2029 period. The rating agency expects RSEII to remain prudent to preserve liquidity during periods of potentially lower CFO generation. Moreover, the IMTN programme has the benefit of a bank guarantee from BPMB. 

MARC Ratings notes the Sabah state government’s plan to take over Tenaga Nasional Berhad’s (TNB) 80% stake in SESB, expected to be completed around 2030. The rating agency does not expect the ownership transfer to materially affect the PPA offtaker risk, as we believe the state government would have a high propensity to support SESB, given its status as a state utility company. In addition, in Budget 2024, the federal government has affirmed its commitment to continue assisting the state government in strengthening Sabah’s electricity supply industry until the completion of the “SESB Transformation Plan”.

The stable outlook reflects that on BPMB’s financial institution rating. 

The rating will be lowered in the event of a downgrade in BPMB’s rating.