Tuesday, Feb 08, 2005
MARC has reaffirmed the ratings of Tenaga Nasional Berhad’s (TNB) private debt securities namely; RM1.5 billion Murabahah Commercial Papers and Murabahah Medium-Term Notes (2002/2009) (MARC-1ID/AA+ID); RM2.0 billion Al-Bai’ Bithaman Ajil Bonds (AA+ID); RM500 million 8-year Fixed Rate Unsecured Bonds (AA+); and RM1.0 billion Al-Bai’ Bithaman Ajil Notes Issuance Facility (MARC-1ID /AA+ID) and the utility’s Issuer rating at AA+.
The strong ratings are reflective of its strategic importance to Malaysia’s economy and national security; dominant role in generation; monopolistic position in the transmission and distribution of electricity in Peninsular Malaysia; majority government ownership; and improving financial profile. These positive factors are, however, moderately offset by the present irregular tariff-setting exercise; significant exposure to foreign exchange risks, albeit on a decreasing trend, and high but acceptable level of debt leverage.
TNB currently accounts for almost 61% of the country’s installed capacity and distributes substantially all of the electricity demand. Electricity sales in FY2004 continued on an upward trend, rising 7.8% to RM17.2 billion on the back of growth in electricity demand. For the next five years electricity demand is projected to grow by a compounded annual growth rate of 9.1% in tandem with the country’s economic growth, continued industrialization programme and rising affluence of the masses. Driving electricity sales will be the industrial and commercial sectors, which collectively accounted for almost 80% of the utility’s total sales in FY2004.
Tariff adjustments, which are subject to regulatory approval, have not been regular, with the last interim tariff increase of 1.5 cents per kWh effected in 1997. Until the tariff review takes place, TNB’s financial position will continue to be influenced by the cost of purchased power due to the lack of an avenue to pass through the increases in this cost to consumers. TNB’s five-fuel diversification policy helps to control escalation in costs. FY2004 saw continued shift towards the increased use of coal evident by the increase in costs of coal to RM956.8 million from RM766.3 million previously. Nevertheless, gas remained as the main fuel source, benefiting from the price currently capped by PETRONAS Gas Berhad, especially during the rising prices of coal since early 2004.
Whilst total operating costs increased by about 6.2% in the last fiscal year, the larger growth (7.6%) in revenue enabled the utility to achieve an improved profit margin of 18.8% compared to 17.4% in the previous fiscal year.
TNB’s debt leverage was maintained at 2.2 times following the issuance of RM3.4 billion bonds by Kapar Energy Ventures Sdn Bhd, TNB’s 60%-owned subsidiary. At the end of August 2004, 48.8% of total debt obligations were in foreign currency, of which 58.2% were denominated in US Dollar. The depreciation of the Dollar against other major currencies (i.e. Sterling, Yen and Euro) has resulted in TNB incurring foreign exchange losses of RM571.8 million for FY2004. However, it is noted that the losses constituted only 3.9% of TNB’s total operating costs for FY2004.
Debt management efforts over the intermediate term will be focused on reducing leverage through measures such as divestment of non-core assets, repackaging existing borrowings and transferring borrowings off its balance sheet.
The strong ratings are reflective of its strategic importance to Malaysia’s economy and national security; dominant role in generation; monopolistic position in the transmission and distribution of electricity in Peninsular Malaysia; majority government ownership; and improving financial profile. These positive factors are, however, moderately offset by the present irregular tariff-setting exercise; significant exposure to foreign exchange risks, albeit on a decreasing trend, and high but acceptable level of debt leverage.
TNB currently accounts for almost 61% of the country’s installed capacity and distributes substantially all of the electricity demand. Electricity sales in FY2004 continued on an upward trend, rising 7.8% to RM17.2 billion on the back of growth in electricity demand. For the next five years electricity demand is projected to grow by a compounded annual growth rate of 9.1% in tandem with the country’s economic growth, continued industrialization programme and rising affluence of the masses. Driving electricity sales will be the industrial and commercial sectors, which collectively accounted for almost 80% of the utility’s total sales in FY2004.
Tariff adjustments, which are subject to regulatory approval, have not been regular, with the last interim tariff increase of 1.5 cents per kWh effected in 1997. Until the tariff review takes place, TNB’s financial position will continue to be influenced by the cost of purchased power due to the lack of an avenue to pass through the increases in this cost to consumers. TNB’s five-fuel diversification policy helps to control escalation in costs. FY2004 saw continued shift towards the increased use of coal evident by the increase in costs of coal to RM956.8 million from RM766.3 million previously. Nevertheless, gas remained as the main fuel source, benefiting from the price currently capped by PETRONAS Gas Berhad, especially during the rising prices of coal since early 2004.
Whilst total operating costs increased by about 6.2% in the last fiscal year, the larger growth (7.6%) in revenue enabled the utility to achieve an improved profit margin of 18.8% compared to 17.4% in the previous fiscal year.
TNB’s debt leverage was maintained at 2.2 times following the issuance of RM3.4 billion bonds by Kapar Energy Ventures Sdn Bhd, TNB’s 60%-owned subsidiary. At the end of August 2004, 48.8% of total debt obligations were in foreign currency, of which 58.2% were denominated in US Dollar. The depreciation of the Dollar against other major currencies (i.e. Sterling, Yen and Euro) has resulted in TNB incurring foreign exchange losses of RM571.8 million for FY2004. However, it is noted that the losses constituted only 3.9% of TNB’s total operating costs for FY2004.
Debt management efforts over the intermediate term will be focused on reducing leverage through measures such as divestment of non-core assets, repackaging existing borrowings and transferring borrowings off its balance sheet.