Thursday, Jan 31, 2019
MARC has affirmed its AAAIS rating on TTM Sukuk Berhad’s (TTM SPV) RM600.0 million Sukuk Murabahah with a stable outlook. The outstanding sukuk amounted to RM400 million as at end-December
2018.
The affirmed rating reflects MARC’s assessment of a
very high likelihood of support from project sponsors, Petroliam Nasional Berhad (PETRONAS) and
PTT Public Company Ltd (PTT), based on their strategic and vested interests to
ensure the success of the government-to-government Trans Thailand-Malaysia
(TTM) project. PETRONAS and PTT are the national oil companies of Malaysia and
Thailand.
TTM SPV is a funding vehicle for the second phase of
the TTM project (TTM Phase II), consisting of two gas pipelines between the
Malaysia-Thailand Joint Development Area (JDA) and the industrial city of Rayong
in Thailand. TTM SPV is wholly owned by Trans Thai-Malaysia (Thailand) Ltd
(TTMT), a 50:50 joint-venture company of PETRONAS and PTT. The rating also
considers the credit linkages in the form of cross-acceleration and
cross-default provisions between the rated sukuk and the term loan taken to
finance the first phase of the TTM project (TTM Phase I) of which PETRONAS is
the main offtaker.
The stable outlook reflects MARC’s expectation of
TTMT’s satisfactory operating performance and the project sponsors’ continued
commitment to the project. Any significant weakness in TTMT’s credit metrics
and/or decline in the TTM project’s strategic importance to the project sponsors would exert
pressure on the rating.
Although PTT and TTMT are domiciled in Thailand, and
the project revenue of TTM Phase II is denominated in US dollars or its Thai
baht equivalent, MARC does not consider the rating to be constrained by
Thailand’s foreign currency rating. This assessment is based on the rating
agency’s view that PETRONAS has a strong incentive to provide ringgit liquidity
in the event of transfer and convertibility issues arising from any foreign
exchange restrictions imposed by the Thai government. PETRONAS has a senior
unsecured rating of AAA/Stable from MARC, based on publicly available
information.
The project’s standalone credit profile is supported
by the stable and predictable nature of project cash flow on the back of a
cost-plus tariff structure under the long-term service agreements with PTT and
PETRONAS. TTMT’s availability-based capacity revenue is calculated based on the unit capacity reservation charge that
incorporates operating costs and finance service obligations in addition to
providing adequate shareholders’ return. TTM Phase II’s revenue declined to
US$8.1 million in 1H2018 and US$18.1 million in 2017 (2016: US$18.8 million) on
the back of lower gas sales volumes. Despite the revenue decline, TTM Phase
II’s operating profit margin remained stable at around 61.2% and 63.6% in
1H2018 and 2017 (1H2017: 64.8%; 2016: 63.3%). Cash flow generation remained adequate to meet its debt service with an annual finance service
coverage ratio (AFSCR) of 1.10x in 2017. While the AFSCR is just within the
covenanted requirement of 1.10x, MARC notes that this ratio has continued to
decline in recent years as TTM Phase II has maintained large dividend payouts even as its
profitability declined. The rating agency opines that as dividend payments are
discretionary in nature, the company should exercise greater discipline to
ensure that sufficient buffer is maintained
with respect to its AFSCR.
At the company level, TTMT recorded slightly lower
revenue of US$91.6 million in 2017 on lower gas sales volumes but posted higher
pre-tax profit of US$34.5 million, representing a 13.9% y-o-y growth due to
foreign exchange gains as well as lower administrative expenses. TTMT’s cash flow from operations was 5.9% lower y-o-y at US$96.0 million in 2017 despite recording a
higher profit, as the gains were largely driven by non-cash items.
As at end-2017, TTMT’s outstanding borrowings were
lower at US$318.7 million (2016: US$356.3 million) as it pared down some of its long-term loans from financial
institutions, while total shareholders’ funds marginally
increased to US$265.7 million. This led to an improvement in its leverage ratio
to 1.19x compared to 1.35x in 2016, which was well within the covenanted debt-to equity ratio of 2.33x.
Contacts:
Douglas De Alwis, +603-2717 2965/ douglas@marc.com.my
Sharidan Salleh, +603-2717 2954/ sharidan@marc.com.my