Monday, Jan 13, 2003
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 PPA commenced 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 76.1% of ARLT’s total revenue for FY2002, 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. In the same period, CPs slightly increased to an average RM3.2 million per month from RM3.0 million per month.
Energy payments (EP), in respect of the sale of electrical energy, are sufficient to cover fuel and variable operating costs. The average monthly EPs slightly declined to RM1.0 million in FY2002 (FY2001: RM1.2 million), reflecting the effect of fewer number of dispatches made by SESB due to the nature of the Melawa Plant being a true “peaking plant” – where electricity sold is based on the demand from SESB.
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 to 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 FY2002, ARLT’s revenue remained about the same level as FY2001’s results (FY2002: RM51.1 million; FY2001: RM51.2 million). Nevertheless, its profit before tax improved 75.1% from RM5.7 million to RM9.9 million attributed to lower total financing costs.
Credit risk is mitigated since SESB is the sole customer which in turn is an 80%-owned subsidiary of TNB. As at 30 November 2002, total amount due from SESB stood at RM10.1 million, equivalent to two months electricity supply.
ARLT’s cash flow interest coverage more than tripled to 12.3 times from 3.8 previously. Its debt service cover ratio (DSCR) remained above the minimum 1.2 times. As at 31 March 2002, the DSCR is 1.6 times. Based on the company’s projected cash flows, the minimum and average DSCR over the remaining eight-year period of the facility is projected at 1.4 times and 2.1 times respectively.
The redemption of the ABBA on a quarterly basis reduces refinancing risk at the maturity of the facility. By the fourth year of the facility, 54% of the debt securities shall have been redeemed. As at end of November 2002, the total amount outstanding of the ABBA stood at RM125.0 million.
ARLT’s gearing level for FY2002 stood at 4.8 times; well below the maximum level of 9 times stipulated under the ABBA’s covenants. With the scheduled amortization of the ABBA and no major capital expenditure requirement, the company’s capital structure is expected to gradually strengthen in the intermediate term.
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 PPA commenced 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 76.1% of ARLT’s total revenue for FY2002, 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. In the same period, CPs slightly increased to an average RM3.2 million per month from RM3.0 million per month.
Energy payments (EP), in respect of the sale of electrical energy, are sufficient to cover fuel and variable operating costs. The average monthly EPs slightly declined to RM1.0 million in FY2002 (FY2001: RM1.2 million), reflecting the effect of fewer number of dispatches made by SESB due to the nature of the Melawa Plant being a true “peaking plant” – where electricity sold is based on the demand from SESB.
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 to 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 FY2002, ARLT’s revenue remained about the same level as FY2001’s results (FY2002: RM51.1 million; FY2001: RM51.2 million). Nevertheless, its profit before tax improved 75.1% from RM5.7 million to RM9.9 million attributed to lower total financing costs.
Credit risk is mitigated since SESB is the sole customer which in turn is an 80%-owned subsidiary of TNB. As at 30 November 2002, total amount due from SESB stood at RM10.1 million, equivalent to two months electricity supply.
ARLT’s cash flow interest coverage more than tripled to 12.3 times from 3.8 previously. Its debt service cover ratio (DSCR) remained above the minimum 1.2 times. As at 31 March 2002, the DSCR is 1.6 times. Based on the company’s projected cash flows, the minimum and average DSCR over the remaining eight-year period of the facility is projected at 1.4 times and 2.1 times respectively.
The redemption of the ABBA on a quarterly basis reduces refinancing risk at the maturity of the facility. By the fourth year of the facility, 54% of the debt securities shall have been redeemed. As at end of November 2002, the total amount outstanding of the ABBA stood at RM125.0 million.
ARLT’s gearing level for FY2002 stood at 4.8 times; well below the maximum level of 9 times stipulated under the ABBA’s covenants. With the scheduled amortization of the ABBA and no major capital expenditure requirement, the company’s capital structure is expected to gradually strengthen in the intermediate term.