Monday, Jan 12, 2004
Malaysian Rating Corporation Berhad has reaffirmed the rating of AID (Single A Flat, Islamic Debt) for ARL Tenaga Sdn Bhd’s (ARLT) Al-Bai Bithaman Ajil Secured Serial Bonds Facility (ABBA) with a nominal value of RM177.0 million. The reaffirmation of the rating reflects the stable and predictable cash flow which is expected to cover the company’s debt servicing requirements comfortably; the presence of a long-term fuel supply contract which eliminates supply disruption risk; the adoption of proven engine design and well-developed operating methods for its plant; and an issue structure which promotes the scheduled amortization of the Islamic debt. These strengths are moderated by the declining but still substantial debt level and limited financial flexibility.
ARLT owns and operates a 50 MW medium fuel oil power plant in Melawa, Sabah. The power plant’s total generating capacity and energy production are sold to Sabah Electricity Sdn Bhd (SESB) pursuant to a 21-year Power Purchase Agreement (“PPA”) commencing on 31 October 1995. SESB, an 80%-owned subsidiary of Tenaga Nasional Berhad, has assumed the functions of the previous Sabah Electricity Board or Lembaga Letrik Sabah.
The PPA has been structured to provide a stable and predictable revenue stream through a minimum payment provision [capacity payment], dependent on plant capacity and availability. The capacity payment (“CP”) contributes 64.6% of ARLT’s total revenue for FY2003, allowing the company to meet its fixed operating costs and service debts even when the plant is not dispatched. ARLT was able to maintain the plant’s net dependable capacity of 47.5 MW [equivalent availability factor of 87%] during the year under review. The second payment under the PPA is in respect of sale of electrical energy [energy payment] to SESB, which are sufficient to cover fuel and variable operating costs.
The Sulzer ZAV40 diesel engines employed at the plant are backed by tested and proven technology and substantial operating experience worldwide. Operation and maintenance of the facility is carried out by ARL Janakuasa Letrik Sdn Bhd; another wholly owned subsidiary of ARLT’s parent company, ARL Associates Sdn Bhd.
Medium fuel oil for the plant’s operation is supplied by PETRONAS Dagangan Bhd under a 15-year contract. The risk of insufficient fuel supply is mitigated by the availability of fuel storage facilities at the site and the presence of other oil companies operating within the vicinity. Any increases in fuel prices are passed to SESB, through adjustments to the fuel component of EPs under the PPA, thereby preserving the company’s operating margin.
For fiscal year 2003 (FY2003), ARLT’s revenue rose 17.7% compared to FY2002 largely due to the increase in energy payment to RM20.3 million (FY2002: RM11.6 million) as demand for electricity in the state of Sabah grew. Meanwhile, a disproportionate increase in operating cost by 35.3% arising mainly from higher fuel expenses of RM20.6 million (FY2002: RM12.5 million), however, squeezed operating margin to 32.0%. Nonetheless, operating profit margin is still higher than the three-year average of 28.8% achieved previously.
During the latest fiscal year, ARLT’s DSCR was above the covenanted level of 1.2 times and the projected minimum and average DSCR for the remaining tenure of the ABBA Bonds is 1.3 times and 1.7 times respectively. In terms of the company’s gearing position, the debt-to-equity ratio for FY2003 increased to 6.1 times as a result of the reclassification of the redeemable preference shares (“RPS”) as debt instrument in accordance with MASB 24. Nevertheless, the ratio is still below the maximum level of 9 times stipulated under the ABBA’s covenants as the issue structure permits the RPS to be included in shareholders’ funds. The ratio calculated in accordance with the issue structure is 3.3 times.
ARLT owns and operates a 50 MW medium fuel oil power plant in Melawa, Sabah. The power plant’s total generating capacity and energy production are sold to Sabah Electricity Sdn Bhd (SESB) pursuant to a 21-year Power Purchase Agreement (“PPA”) commencing on 31 October 1995. SESB, an 80%-owned subsidiary of Tenaga Nasional Berhad, has assumed the functions of the previous Sabah Electricity Board or Lembaga Letrik Sabah.
The PPA has been structured to provide a stable and predictable revenue stream through a minimum payment provision [capacity payment], dependent on plant capacity and availability. The capacity payment (“CP”) contributes 64.6% of ARLT’s total revenue for FY2003, allowing the company to meet its fixed operating costs and service debts even when the plant is not dispatched. ARLT was able to maintain the plant’s net dependable capacity of 47.5 MW [equivalent availability factor of 87%] during the year under review. The second payment under the PPA is in respect of sale of electrical energy [energy payment] to SESB, which are sufficient to cover fuel and variable operating costs.
The Sulzer ZAV40 diesel engines employed at the plant are backed by tested and proven technology and substantial operating experience worldwide. Operation and maintenance of the facility is carried out by ARL Janakuasa Letrik Sdn Bhd; another wholly owned subsidiary of ARLT’s parent company, ARL Associates Sdn Bhd.
Medium fuel oil for the plant’s operation is supplied by PETRONAS Dagangan Bhd under a 15-year contract. The risk of insufficient fuel supply is mitigated by the availability of fuel storage facilities at the site and the presence of other oil companies operating within the vicinity. Any increases in fuel prices are passed to SESB, through adjustments to the fuel component of EPs under the PPA, thereby preserving the company’s operating margin.
For fiscal year 2003 (FY2003), ARLT’s revenue rose 17.7% compared to FY2002 largely due to the increase in energy payment to RM20.3 million (FY2002: RM11.6 million) as demand for electricity in the state of Sabah grew. Meanwhile, a disproportionate increase in operating cost by 35.3% arising mainly from higher fuel expenses of RM20.6 million (FY2002: RM12.5 million), however, squeezed operating margin to 32.0%. Nonetheless, operating profit margin is still higher than the three-year average of 28.8% achieved previously.
During the latest fiscal year, ARLT’s DSCR was above the covenanted level of 1.2 times and the projected minimum and average DSCR for the remaining tenure of the ABBA Bonds is 1.3 times and 1.7 times respectively. In terms of the company’s gearing position, the debt-to-equity ratio for FY2003 increased to 6.1 times as a result of the reclassification of the redeemable preference shares (“RPS”) as debt instrument in accordance with MASB 24. Nevertheless, the ratio is still below the maximum level of 9 times stipulated under the ABBA’s covenants as the issue structure permits the RPS to be included in shareholders’ funds. The ratio calculated in accordance with the issue structure is 3.3 times.