MARC has affirmed its AA-_IS rating on Jimah East Power Sdn Bhd’s (JEP) outstanding RM8.98 billion Sukuk Murabahah with a stable outlook.

The affirmed rating reflects (1) JEP’s predictable cash flows from its 2x1000MW ultra-supercritical coal power plant under a 25-year power purchase agreement (PPA) with Tenaga Nasional Berhad (TNB), (2) its operational and financial linkages with TNB, which has an indirect 70%-stake in JEP, and (3) the credit strength of its project sponsors, which also include Mitsui & Co. Ltd and The Chugoku Electric Power Co., Inc. The rating is moderated by risks associated with the plant’s performance.

Of the plant’s two units, Unit 1 was unable to maintain its unplanned outage rate below the limit of 6% as per the PPA, recording 7.90% in 1H2020. Unit 2 was also unable to meet PPA heat rate requirements between April and June 2020. Subsequent repair and maintenance work as well as better coal management have returned both metrics back within PPA requirements in 2H2020.

As a result of the aforementioned operational issues, JEP incurred minor capacity and energy payment reductions in 1H2020. Cash flow from operations (CFO) stood at RM560.3 million, with moderate CFO interest coverage of 2.04x. Its designated account balances of RM911.3 million as at end-December 2020 provides sufficient coverage to meet its next sukuk profit payment and first principal repayment amounting to RM324.3 million on June 4, 2021. JEP’s finance service ability remains adequate with projected minimum and average finance service cover ratios with cash of 1.57x and 1.79x throughout the sukuk tenure.

The stable outlook reflects our expectations that the power plant’s operational performance will remain within projections, any operational issues encountered will be adequately addressed and that JEP will maintain sufficient liquidity buffers.

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