The rating is equalised to its ultimate parent Tenaga Nasional Berhad’s (TNB) corporate credit rating of AAA/stable based on the unconditional and irrevocable rolling guarantee from TNB to fund shortfalls in the finance service account during the tenure of the sukuk. The rating also considers TNB’s undertaking to maintain full ownership in its wholly-owned subsidiary TNB Manjung Five Sdn Bhd and TNB Western, the funding vehicle of TNB Manjung Five for the construction of a 1,000MW ultra-supercritical coal-fired power plant in Manjung, Perak. The plant achieved commercial operation date (COD) in September 2017 but has been beset by operational issues in recent years.

TNB Manjung Five recorded higher heat rates in 2019 due to steam leakage at its high-pressure turbine bypass valves; this problem has been rectified with the cost incurred adequately covered by the existing latent defect warranty. Nonetheless, TNB Manjung Five recorded 19.9% lower-than-budgeted energy payments of RM973.5 million. Capacity payments of RM291.0 million were also lower than budgeted, by about 2.9%, due to its unplanned outage rate exceeding the unplanned outage limit of 8.0% by 0.3%. This was mainly caused by damaged draft fan blades that have now been temporarily replaced. Until upgrading works scheduled to commence in February 2021 are completed, the plant is expected to be operating below capacity.

TNB Manjung Five registered pre-tax losses of RM487.4 million in 2019, mainly due to provision for impairments related to the plant’s operational issues. The adjusted cash flow from operations (CFO) (including finance lease income) stood at RM255.7 million and CFO interest cover was 1.25x. Based on cash flow projections, its finance service coverage ratio would fall below 1.0x in 2023. Any CFO deficiency to meet scheduled sukuk obligations then is expected to be covered by TNB under its rolling guarantee.

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