MARC has affirmed its rating of AA-IS on Jimah East Power Sdn Bhd’s (JEP) outstanding RM8.98 billion Sukuk Murabahah with a stable outlook.
JEP operates a 2×1,000-megawatt (MW) ultra-supercritical coal-fired power plant in Jimah, Negeri Sembilan. The affirmed rating incorporates (1) the predictable cash flows from the power plant, (2) a manageable repayment profile that matches JEP’s availability-based revenue structure under the 25-year power purchase agreement (PPA) with Tenaga Nasional Berhad (TNB), (3) the operational and financial linkages with TNB which has a 70%-stake in JEP, and (4) the credit strength of project sponsors, namely TNB, Mitsui & Co., Ltd and The Chugoku Electric Power Co., Inc. The rating is mainly tempered by risks associated with the relatively new ultra-supercritical technology.
The power plant achieved full commercial operation date (COD) on August 22, 2019 (Unit 1) and December 27, 2019 (Unit 2), following a 68-day and 12-day delay from the original scheduled COD (SCOD). The delay in Unit 1 was due to rectification works for damaged turbine blades and malfunction of a low-pressure turbine bypass valve; the delay for Unit 2 was largely due to rectification works for overheated ground wires. The liquidated damages (LD) provision under the engineering, procurement and construction (EPC) contract provides sufficient cushion to address the LD penalty under the PPA and loss of income arising from a delay in achieving the scheduled completion for both units. The power plant’s project expenditure is expected to increase to RM11.5 billion after considering costs incurred and expected to be incurred in 2020. MARC notes that the project cost is below the budgeted amount of RM11.6 billion.
Post-COD, the power plant has to date achieved satisfactory performance, meeting PPA performance requirements. JEP’s finance service ability remains adequate with minimum and average finance service cover ratios (FSCR) of 1.57x and 1.81x under base case projections, but comfortably above the covenanted FSCR level of 1.25x.
MARC does not expect the ongoing COVID-19 pandemic to have a significant impact on JEP’s credit profile due to the electricity industry’s status as an essential service, allowing the power plant to continue operations as usual. All demand risk is borne by TNB; JEP continues to receive capacity payments from TNB as long as it meets availability requirements stipulated under the PPA.
Lim Chi Ching, +603-2717 2963 /email@example.com;
Neo Xue Wei, +603-2717 2937 /firstname.lastname@example.org;
Sharidan Salleh, +603-2717 2954 /email@example.com.
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