MARC Ratings has affirmed Tenaga Nasional Berhad’s (TNB) corporate credit rating at AAA with a stable outlook. 

TNB’s strong credit profile reflects its monopoly on electricity transmission in Peninsular Malaysia and Sabah, its status as the largest domestic electricity producer, distributor and retailer, and the favourable Incentive-Based Regulation (IBR) framework under which it is able to recover its fuel costs and earn a commensurate rate of return for capital expenditure. MARC Ratings assesses the likelihood of government support to TNB to be very high based on its strategic importance as the country’s principal energy provider. There have also been strong precedents of support, evidenced in the award of development grants, and the record of subsidy reimbursements. Accordingly, the rating agency has provided a two-notch uplift to TNB’s standalone rating. 

The rating agency notes that TNB has evolved its strategy in line with the rapid changes in the domestic energy industry. These include its capital investments that are generally aligned with the government’s National Energy Transition Roadmap; going forward, renewable energy sources would drive capacity expansion. TNB’s exposure to risk is also limited as changes made in energy supply regulations that would result in the entry of third-party electricity suppliers in September 2024  are expected to only impact TNB’s retail business. 

Revenue grew by 4.3% y-o-y to RM53.1 billion in 2023 on higher electricity sales to commercial and domestic users. Pre-tax profit, however, declined to RM3.4 billion from RM5.3 billion in 2022 due to negative fuel margins of RM618.7 million from its generation segment, and higher repair and maintenance costs for its distribution network; the repair and maintenance costs remain within the IBR approved level. For 2024, TNB’s earnings are anticipated to be broadly steady, based on the expected narrowing of negative fuel margins and moderate impact on capacity payments (CP) from an outage incident that occurred at one of the units at its TNB Janamanjung coal plant in December 2023. 

Cash flow from operations (CFO) grew to RM32.2 billion in 2023, benefiting from the collection of RM12.2 billion of outstanding Imbalance Cost Pass-Through (ICPT) receivables. CFO generation is likely to remain healthy in 2024, albeit not as high as seen in 2023. The collection of the balance ICPT receivables of RM4.7 billion (fully received in May 2024) will contribute to 2024 cash flow. 

TNB has managed to reduce its debt level to RM60.4 billion as at end-March 2024 (end-2023: RM61.8 billion). Capital spending — both non-regulated and regulated capex — is expected to increase going forward in line with the utility’s energy transition goals; however, leverage, as reflected by a DE ratio of 1.0x, is not anticipated to increase substantially. This view is based on the staggered expansion plans that would be aided by internal cash generation and available liquidity. The rating agency also believes that TNB’s CFO and cash balances would be adequate to support working capital requirements and debt amortisation. 

The stable outlook reflects the rating agency’s expectations that TNB’s business profile will be broadly maintained in the next 12-18 months and that the group will adhere to prudent financial management.

While we do not envisage any upgrade to TNB’s standalone corporate credit rating in the near term, a positive rating action could be considered if there are material improvements in its cash flow metrics, particularly its debt and interest coverages. 

TNB’s corporate credit rating could come under pressure in the unlikely event of the company’s diminishing strategic role as the country’s principal energy provider and/or if there is a fundamental weakening in its cash flow or liquidity position.