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Posted Date: September 14, 2021

MARC has affirmed its AAAIS rating on TNB Northern Energy Berhad's (TNB Northern) outstanding sukuk of RM1.35 billion with a stable outlook. TNB Northern is the funding vehicle for its parent TNB Prai Sdn Bhd to develop and operate the 1,071.43-MW combined-cycle gas turbine (CCGT) power plant in Seberang Perai Tengah, Penang. TNB Prai, which is an indirect wholly-owned subsidiary of Tenaga Nasional Berhad (TNB), has a 21-year power purchase agreement (PPA) with TNB.

The rating is equalised to TNB's corporate credit rating of AAA/stable based on our view on the strength of the financial commitment TNB has extended through an unconditional and irrevocable rolling guarantee to fund shortfalls in the finance service account. The equalisation is also supported by TNB's undertaking to maintain full indirect ownership in TNB Prai and TNB Northern.

The rolling unplanned outage rate (UOR) has been improving since November 2020 in the absence of major outages. As at end-May 2021, the rolling UOR of Unit 20 stood at 4.19%. In 2020, the power plant had been affected by some operational issues, leading to breaches in the unplanned outage limit at one of its two generating units, Unit 20, that resulted in the rolling UOR to increase to 6.51% in October 2020. Because of the breaches, capacity payments were lower by 3.6% to RM194.4 million against forecast in 2020.

Energy payments received were 33.0% lower than forecast of RM1,893.0 million in 2020 due to lower gas price in line with lower global oil prices. As in previous years, TNB Prai was unable to fully pass through its fuel costs of RM21.6 million as the plant's heat rates continued to exceed PPA-specified requirements.

TNB Prai recorded 2.2% y-o-y lower revenue of RM1,469.1 million in 2020. Cash flow from operations (CFO) was moderate at RM45.5 million. Based on the cash flow projections, TNB Prai's minimum and average finance service cover ratios (FSCR) with cash would stand at 0.27x and 1.76x; nonetheless, any liquidity shortfalls are expected to be covered by the rolling guarantee. The balance in the designated accounts of RM144.9 million as at June 30, 2021 is more than sufficient to meet the upcoming semi-annual sukuk profit and principal obligations of RM60.0 million in November 2021.

Contacts:
Neo Xue Wei, +603-2717 2937/ xuewei@marc.com.my;
Lee Chi Han, +603-2717 2939/ chihan@marc.com.my;
Sharidan Salleh, +603-2717 2954/ sharidan@marc.com.my.

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