MARC has affirmed its AA-IS rating on Malakoff Power Berhad’s (MPower) RM5.4 billion Sukuk Murabahah with a stable outlook.
MPower is the operations and maintenance operator of its parent company Malakoff Corporation Berhad’s (Malakoff) majority-owned domestic power plants. The rating approach considers the consolidated credit profile of MPower and its parent company Malakoff given the strong operational and financial linkages between them, in particular the common reliance on residual cash flows from Malakoff’s power plants and the parent company’s explicit Kafalah guarantee in favour of MPower’s sukukholders. The affirmed rating mainly reflects the predictability of cash flows from Malakoff’s power plants under long-term power purchase agreements (PPA) with Tenaga Nasional Berhad (TNB) (AAA/Stable).
Lower dispatch demand from TNB during the Movement Control Order (MCO) period led to a 14.4% y-o-y decline in Malakoff’s revenue to RM4,763.0 million in 9M2020. Despite this, most of Malakoff’s power plants exhibited strong operational performance and received full capacity payments during the period. Malakoff’s capacity payments were relatively stable, amounting to RM1,557.3 million (9M2019: RM1,570.8 million). Pre-tax profit increased by 4.8% y-o-y to RM370.3 million, mainly due to the consolidation of newly acquired subsidiary Alam Flora Sdn Bhd and higher contribution from associate companies following the acquisition of an additional 12% equity stake in co-generation and desalination plants in the Kingdom of Saudi Arabia. Malakoff’s cash flow from operations (CFO) remained healthy at RM1,380.2 million in 9M2020, with CFO interest coverage of 2.49x. Its liquidity was strong with cash balances of RM4.6 billion as at end-September 2020.
The group’s leverage position improved to 1.73x following the full repayment of its Macarthur wind farm acquisition loan and principal repayment of Tanjung Bin Power’s sukuk. Leverage position is expected to continue improving as MPower repays its scheduled sukuk obligations, while any new debt taken on for planned capex in the near term will be spread out over five years during the construction of the assets.
The stable outlook incorporates MARC’s expectation that Malakoff’s power generating subsidiaries will continue delivering satisfactory operational performance. The COVID-19 pandemic is not expected to materially impact the group’s earnings given the availability-based capacity payments under the PPAs between its domestic power plants and TNB, which allocate demand risk to the offtaker.
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