Posted Date: November 25, 2021

MARC has affirmed its AA-IS rating on Malakoff Power Berhad's (MPower) outstanding RM2.93 billion Sukuk Murabahah with a stable outlook.

MPower is the operations and maintenance operator of Malakoff Corporation Berhad's (Malakoff) majority-owned domestic independent power producers (IPP). MPower is a wholly-owned subsidiary of Malakoff. MARC's rating approach to MPower considers the consolidated credit profile of both given the strong operational and financial linkages between them, in particular the common reliance on residual cash flows from Malakoff's power plants and its explicit Kafalah guarantee in favour of MPower's sukukholders.

The affirmed rating is underpinned by the predictability of cash flows from Malakoff's power plants under long-term power purchase agreements (PPA) with Tenaga Nasional Berhad (TNB) (AAA/Stable). This is evidenced by the plants' strong operational track record of meeting PPA requirements. Moderating the rating is the high reliance on residual cash flows from two of Malakoff's IPPs, namely Tanjung Bin Power Sdn Bhd and Segari Energy Ventures Sdn Bhd.

In 1H2021, Malakoff received capacity payments of RM1,062.1 million in line with expectations (1H2020: RM1,033.2 million) as its key IPPs met PPA requirements. The group was able to fully pass through its fuel costs to TNB. However, energy payments declined to RM1,369.1 million (1H2020: RM1,729.4 million) largely due to lower electricity demand during the period.

Group leverage position improved slightly, with debt-to-equity (DE) ratio standing at 1.65x following scheduled repayments of group debt. We expect Malakoff's leverage position to improve as repayments on outstanding borrowings are expected to exceed potential new borrowings; DE ratio will likely fall below 1.5x over the next three years. For the next one-year period, the group is scheduled to repay RM1.4 billion, while any new capital commitments will be funded by internal cash and/or borrowings.

At company level, MPower recorded an operational cash flow of RM338.1 million, supported by a RM334.7 million repayment of its inter-company loan to Malakoff. Its cash and bank balances (including investments) of RM624.8 million as at end-June 2021 is sufficient to meet its upcoming sukuk repayment of RM500.0 million on December 17, 2021. The stable outlook incorporates MARC's expectation that Malakoff's power generating subsidiaries will continue delivering satisfactory operational performance.

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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