Thursday, Feb 12, 2004
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 (AA+ID/MARC-1ID) 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; near-monopolistic position in the transmission and distribution of electricity; 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 60% of the country’s installed capacity and distributes substantially all of the electricity demand. Electricity sales in FY2003 continued on an upward trend, rising 7.0% to RM16.5 billion on the back of growth in electricity demand. For the next five years TNB projects electricity demand 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 FY2003.
Tariff adjustments, which are subject to regulatory approval, have not been regular, with the last interim tariff increase of 8.3% effected in 1997. In fact, the Government announced in March 2003 that tariffs will remain unchanged for the next three years.
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. In a move to control any escalation of costs, TNB has shifted towards the use of coal as a fuel source for new plants evident by the commissioning of its wholly-owned subsidiary TNB Janamanjung Sdn Bhd, a coal-fired power producer with 2,100MW generating capacity. In FY2003, the use of coal doubled that in FY2002, accounting for 35.2% of the generation mix (FY2002: 16.2%). Gas remained as the main fuel source, with the price currently capped by PETRONAS Gas Berhad.
Whilst total operating costs increased by about 5% in the last fiscal year, the larger growth in revenue enabled the utility to achieve an improved profit margin of 16.2% compared to 14.7% previously.
For the second consecutive year, TNB’s debt leverage was slightly above 2 times due to the issuance of USD400 million Guaranteed Exchangeable Bonds to repay its foreign currency denominated debt maturing from 2004 onwards. At the end of August 2003, 51% of total debt obligations were in foreign currency, but only 16.6% were exposed to foreign exchange risk. The focus of debt management efforts over the intermediate term will be on reducing leverage through measures such as divestment, 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; near-monopolistic position in the transmission and distribution of electricity; 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 60% of the country’s installed capacity and distributes substantially all of the electricity demand. Electricity sales in FY2003 continued on an upward trend, rising 7.0% to RM16.5 billion on the back of growth in electricity demand. For the next five years TNB projects electricity demand 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 FY2003.
Tariff adjustments, which are subject to regulatory approval, have not been regular, with the last interim tariff increase of 8.3% effected in 1997. In fact, the Government announced in March 2003 that tariffs will remain unchanged for the next three years.
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. In a move to control any escalation of costs, TNB has shifted towards the use of coal as a fuel source for new plants evident by the commissioning of its wholly-owned subsidiary TNB Janamanjung Sdn Bhd, a coal-fired power producer with 2,100MW generating capacity. In FY2003, the use of coal doubled that in FY2002, accounting for 35.2% of the generation mix (FY2002: 16.2%). Gas remained as the main fuel source, with the price currently capped by PETRONAS Gas Berhad.
Whilst total operating costs increased by about 5% in the last fiscal year, the larger growth in revenue enabled the utility to achieve an improved profit margin of 16.2% compared to 14.7% previously.
For the second consecutive year, TNB’s debt leverage was slightly above 2 times due to the issuance of USD400 million Guaranteed Exchangeable Bonds to repay its foreign currency denominated debt maturing from 2004 onwards. At the end of August 2003, 51% of total debt obligations were in foreign currency, but only 16.6% were exposed to foreign exchange risk. The focus of debt management efforts over the intermediate term will be on reducing leverage through measures such as divestment, repackaging existing borrowings and transferring borrowings off its balance sheet.