View Credit Analysis Report (6053667)

Aid6053667
StatusPublished
CategoryReport
SubcategoryInfrastructure & Utilities - Power
CoidKPSB
Appoletid0
Date Article2021-05-28 00:00:00
PublicYes
TitleKIMANIS POWER SDN BHD - 2021
Content
Rating action    
MARC has upgraded the rating on Kimanis Power Sdn Bhd's (KPSB) outstanding RM650.0 million Sukuk Programmes (sukuk) to AAIS from AA-IS. The rating outlook is stable

Rationale     
The rating upgrade is premised on the consistently strong operational performance of KPSB’s 285-megawatt (MW) combined-cycle gas-fired power plant at Kimanis Bay in Sabah, that has enabled the plant to meet the requirements under the power purchase agreement (PPA). This is reflected by the plant’s good outage, availability and heat rate performances since 2015. The upgrade also considers the workability of KPSB’s self-operating model, which has been adopted since September 2017 and backed by technical support from its ultimate parent Petroliam Nasional Berhad (PETRONAS). The paring down of KPSB’s borrowings to RM648.7 million as at end-2020 from RM1.16 billion at the project’s inception, assisted by the steadily amortising schedule of its sukuk series further supports the rating action.

The rating remains underpinned by KPSB’s 21-year PPA under which the demand risk is allocated to the offtaker Sabah Electricity Sdn Bhd (SESB), an 83.0%-owned subsidiary of Tenaga Nasional Berhad (TNB)(AAA/Stable). The credit strength of PETRONAS Gas Berhad (PGB), which holds a 60% majority stake in KPSB, and the mitigation of gas supply risk through the long-term gas sale agreement that KPSB has with PETRONAS are positive factors.

In 2020, KPSB recorded an unplanned outage rate (UOR) of 1.10%, well within the PPA’s limit of 4.00%. The plant was able to fully pass through its fuel costs on the back of good heat rate performances by its three generating blocks (GB). On the back of the strong performance during the period, KPSB received full capacity payments (CP) of RM202.4 million. Excluding unrealised losses on its foreign exchange hedge, KPSB recorded a higher pre-tax profit of RM101.7 million (2019: RM86.5 million) due to lower administrative expenses as well as financing costs. It has sufficient liquidity, with a healthy cash balance of RM146.5 million that can meet its upcoming sukuk profit payments and principal repayments totalling RM98.1 million in 2021. 

Rating outlook     
The stable outlook incorporates our view that KPSB’s plant and financial performance will remain in line with projections in the near term.

Rating trajectory

Upside scenario     
Further upgrades from the current rating are not expected in the near term as the facility finance service coverage ratio (FSCR) is not projected to improve significantly from the current level of about 2.1x. An upgrade to the next rating band may be considered once KPSB’s borrowings have been pared down substantially (gross debt-to-equity (DE) ratio of below 0.5x), with a stronger liquidity position.

Downward scenario     
Downward pressure on the rating could happen in the event of an unexpected weakness in plant performance that would significantly impact KPSB’s debt servicing ability.

Key strengths
  • Demand risk allocated to offtaker
  • Strong financial profile of project sponsors
  • Steady reduction of borrowings under the amortising structure of sukuk series
Key risk
  • Plant performance risk


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