Wednesday, Oct 19, 2022
MARC Ratings has affirmed its AAAIS rating on TTM Sukuk Berhad’s (TTM SPV) RM600.0 million Sukuk Murabahah with a stable outlook. TTM SPV is the funding vehicle of Trans Thai-Malaysia (Thailand) Ltd (TTMT) for the construction of two gas pipelines to transport natural gas from the Malaysia-Thailand Joint Development Area in the Gulf of Thailand to the industrial city of Rayong in Thailand (TTM Phase II). TTMT is a 50:50 joint-venture between project sponsors Petroliam Nasional Berhad (PETRONAS) and PTT Public Company Ltd (PTT), the national oil companies of Malaysia and Thailand.
The rating reflects MARC Ratings’ assessment of a very high likelihood of support from the project sponsors given the strategic importance of this government-to-government project. The support assessment also factors in 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. The rating agency also believes that PETRONAS would have a strong strategic and reputational incentive to provide ringgit liquidity should there be any 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 Ratings, based on publicly available information.
TTMT’s credit profile is supported by its stable and predictable cash flow, underpinned by its long-term service agreements with PTT and PETRONAS, and its cost-plus tariff structure that ensures a relatively stable profit margin. Its unit capacity reservation charge (UCRC) — used to derive its capacity reservation charges/revenue — is designed to cover its operating costs and finance service obligations, while providing adequate shareholders’ return.
In 1H2022, revenue from TTM Phase II held steady at US$8.6 million on a higher UCRC despite a 5.6% y-o-y decline in gas sales volume to 100,565 mmscf. UCRC, which is adjusted every June and when required if there are changes to PTT’s capacity reservations, has been set higher at US$142.34/mmscf for the June-December 2022 period. The pricing mechanism is constructed to cover debt service, operating costs and return on equity.
At TTMT’s level, revenue and operating cash flow in 1H2022 increased by 3.1% and 15.0% y-o-y to US$51.1 million and US$55.6 million. Borrowings reduced to US$134.0 million as at end-June 2022, leading to an improved debt-to-equity (DE) ratio of 0.6x against 0.8x the year before, and remained well within the covenanted DE ratio of 2.33x.
Contacts:
The rating reflects MARC Ratings’ assessment of a very high likelihood of support from the project sponsors given the strategic importance of this government-to-government project. The support assessment also factors in 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. The rating agency also believes that PETRONAS would have a strong strategic and reputational incentive to provide ringgit liquidity should there be any 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 Ratings, based on publicly available information.
TTMT’s credit profile is supported by its stable and predictable cash flow, underpinned by its long-term service agreements with PTT and PETRONAS, and its cost-plus tariff structure that ensures a relatively stable profit margin. Its unit capacity reservation charge (UCRC) — used to derive its capacity reservation charges/revenue — is designed to cover its operating costs and finance service obligations, while providing adequate shareholders’ return.
In 1H2022, revenue from TTM Phase II held steady at US$8.6 million on a higher UCRC despite a 5.6% y-o-y decline in gas sales volume to 100,565 mmscf. UCRC, which is adjusted every June and when required if there are changes to PTT’s capacity reservations, has been set higher at US$142.34/mmscf for the June-December 2022 period. The pricing mechanism is constructed to cover debt service, operating costs and return on equity.
At TTMT’s level, revenue and operating cash flow in 1H2022 increased by 3.1% and 15.0% y-o-y to US$51.1 million and US$55.6 million. Borrowings reduced to US$134.0 million as at end-June 2022, leading to an improved debt-to-equity (DE) ratio of 0.6x against 0.8x the year before, and remained well within the covenanted DE ratio of 2.33x.
Contacts:
Ahmad Ikmal Mohd Shahril, +603-2717 2963/ ikmal@marc.com.my
Hafiza Abdul Rashid, +603-2717 2955/ hafiza@marc.com.my