MARC has revised its rating outlook to stable from developing on Tenaga Nasional Berhad's (TNB) AA+ long-term issuer rating and MARC-1ID/AA+ID Islamic debt issue ratings to reflect the utility's recent success in securing offsetting tariff increases effective July 1, 2008 to counter increases in fuel and purchased power expenses. Concurrently, MARC has reaffirmed the ratings to the following issues:-
-RM2.0 billion Al-Bai’ Bithaman Ajil Bonds rated AA+ID;
-RM1.5 billion Murabahah Commercial Papers and Murabahah Medium Term Notes  
 rated MARC-1ID/AA+ID; and
-RM1.0 billion Al-Bai Bithaman Ajil Notes Issuance Facility rated AA+ID.

The approved tariff hike dispels earlier uncertainties surrounding the impending gas price revision, particularly its implications on earnings and cashflow generation. The revised tariffs will provide TNB with improved certainty pertaining to generation cost recovery, as well as earnings and cashflow generation.

Apart from improved earnings certainty, the affirmed ratings reflect the utility's favourable demand characteristics, moderate gearing levels, solid operational record and considerable regulatory protection. The ratings also incorporate the utility's dominant position within the domestic electricity generation and distribution industry.

For the six months ended February 29, 2008, electricity sales increased by RM827 million in line with a 7.7% and 8.2% growth in demand in Peninsular Malaysia and Sabah respectively. Commercial and industrial consumption in Peninsular Malaysia rose by 8.8% and 7.1% respectively. During the same period, Peninsular Malaysia accounted for 92.7% of the utility's electricity sales. The expected moderation in current domestic economic growth is expected to translate into slower demand growth. Consequently, this will constrain improvement in the industry's reserve margin from its current reported level of around 40%. MARC however believes that the actual reserve margin is more likely in the region of 25% - 30% after taking into account high incidences of planned and unplanned shutdowns of TNB's generation plants. The industry's reserve margin, the cost of which is primarily borne by TNB, continues to be viewed by MARC as a moderating factor in its ratings.
 
TNB's consolidated results for the first six months of financial year ending August 31, 2008 (FY2008) showed a decrease in its net profit before translation gain to RM2,055.3 million from RM2,186.1 million relative to the corresponding period in FY2007. Internal cash generation at group level remained strong in the first half of FY2008, with cashflow from operations (CFO) interest coverage of 5.5 times. TNB's gearing position is expected to stay moderate at below 50%. The recent tariff hike will mitigate the impact of continued fuel price inflation risks on the utility's financial profile, ensuring that its credit metrics remain consistent with the affirmed ratings.

The proposed Windfall Profit Levy (Electricity) Order 2008 by the government, if implemented, would be neutral to TNB's credit ratings.