MARC said today that its AA+/MARC-1 ratings on Tenaga Nasional Berhad (TNB) are not expected to be affected by the utility’s recently announced dividend policy.  TNB intends to distribute between 40% and 60% of its annual free cash flow (operating cashflow less normalized capital expenditure and interest servicing) as dividends to shareholders, starting with fiscal year ending August 31, 2007 (FY2007). Although the more liberal dividend policy will impede the accumulation of internally generated cash flow and more rapid debt reduction, TNB’s increasing annual discretionary cash flows should enable the company to implement its dividend policy while maintaining credit measures appropriate for the current ratings. The utility’s net profit before foreign exchange gains for the first six months of FY2007 rose to RM2,186.1 million from RM516.1 million in the corresponding period in FY2006 on the back of higher electricity tariffs, sustained electricity demand growth, achievement of better cost efficiencies, and recovery of unpaid receivables. TNB generated RM2.6 billion of free cash flow during the first half of the financial year.

Notwithstanding rising payments to independent power producers (IPPs), increased dividends and challenges posed by inflationary pressures, MARC believes that the robust current and prospective demand for electricity, the new tariffs, and cost management initiatives will be supportive of the continuation of current profitability and cash flow generation trends. MARC also expects the company’s financial metrics to remain commensurate with and supportive of the current rating level in light of management’s stated aim of maintaining a stable financial position in the near-to-intermediate term.