MARC has affirmed its AAAIS rating on TNB Northern Energy Berhad’s (TNB Northern) outstanding Islamic securities (sukuk) of RM1.415 billion. The rating carries a stable outlook.
TNB Northern is a funding vehicle of TNB Prai Sdn Bhd which owns and operates a 1,071.43-MW combined-cycle gas turbine power plant in Seberang Perai Tengah, Penang under a 21-year power purchase agreement (PPA) with offtaker Tenaga Nasional Berhad (TNB). TNB Prai is wholly owned by TNB.
The rating is equalised to TNB’s corporate credit rating of AAA/stable based on its financial commitment to provide an unconditional and irrevocable rolling guarantee to fund shortfalls in the finance service account (FSA). The rating also considers an undertaking by TNB to maintain full ownership in TNB Northern and TNB Prai.
The power plant’s unplanned outage rate (UOR) continued to improve; no major technical issues were experienced in 2019. The UOR of generating units 10 and 20 improved to 4.37% and 4.15% (2018: 7.72%; 4.21%), although both remained higher than the unplanned outage limit (UOL) of 4.0% under the PPA. However, the plant’s heat rate has continued to exceed PPA limits due to the lack of margin between actual and PPA heat rate values at COD. While TNB Prai has put in place some mitigation plans, heat rate degradation over time would affect the plant’s ability to meet the PPA heat rate.
For 2019, TNB Prai’s revenue declined marginally by 1.5% y-o-y to RM1,502.3 million due to lower energy payments (EP) of RM1,296.7 million on lower dispatch and higher heat rate exceeding PPA requirements. This was partially offset by higher capacity payments (CP) of RM199.2 million in line with an improvement in the plant’s UOR. TNB Prai reported pre-tax losses of RM1,755.6 million due to significant provisions for impairments, on account of increasing likelihood of the plant not being able to achieve the level of efficiency stated in the PPA.
TNB Prai’s projected minimum and average finance service cover ratios (FSCR) with cash currently stand at 0.52x and 0.93x. The FSCR is projected to fall below 1.00x from 2022; any liquidity shortfalls will be covered by the rolling guarantee. There are sufficient funds of RM98.5 million in the designated accounts as at end-May 2020 to meet upcoming semi-annual profit and principal sukuk obligations of RM66.0 million in November 2020.