Posted Date: November 19, 2020
MARC has affirmed its AAAIS rating on TTM Sukuk Berhad’s (TTM SPV) RM600.0 million Sukuk Murabahah with a stable outlook.
TTM SPV is the funding vehicle for the second phase of the Trans Thailand-Malaysia project (TTM Phase II), consisting of two gas pipelines between the Malaysia-Thailand Joint Development Area and the city of Rayong in Thailand. TTM SPV is wholly owned by Trans Thai-Malaysia (Thailand) Ltd (TTMT), a 50:50 joint-venture company between Petroliam Nasional Berhad (PETRONAS) and PTT Public Company (PTT), the national oil companies of Malaysia and Thailand.
The rating reflects MARC’s assessment of a very high likelihood of support from project sponsors, PETRONAS and PTT given the strategic importance of this government-to-government project. The support assessment also factors in the credit linkages in the form of cross-acceleration and cross-default provisions between the rated sukuk and the term loan taken to finance the first phase of the TTM project.
Although PTT and TTMT are domiciled in Thailand, MARC does not consider the rating to be constrained by Thailand’s sovereign rating. This assessment is based on the rating agency’s view that PETRONAS will have a strong strategic and reputational incentive to provide ringgit liquidity should there be any transfer or convertibility issues arising from any foreign exchange restrictions imposed by the Thai government. PETRONAS has a senior unsecured rating of AAA/Stable from MARC based on publicly available information.
TTMT’s credit profile is supported by its stable and predictable cash flow, underpinned by its long-term service agreements with PTT and PETRONAS, and its cost-plus tariff structure that ensures a relatively stable profit margin. Its unit capacity reservation charge (UCRC) – used to derive its capacity reservation charges/revenue – is designed to cover its operating costs and finance service obligations, while providing adequate shareholders’ return.
In 1H2020, TTM Phase II’s revenue stood steady at US$9.3 million compared to the corresponding period last year, supported by higher UCRC to offset a lower sales volume. At TTMT’s level, revenue was up 1.2% y-o-y to US$49.1 million during the same period, while operating cash flow improved to US$52.2 million to provide a 10.2x cover on interest. Continued deleveraging also saw TTMT’s debt-to-equity ratio improving to 0.92x as at end-June 2020 from about 1.0x a year earlier.
The stable outlook reflects MARC’s expectation that TTMT will maintain its operating performance and that the project sponsors will remain committed to the project. Any significant weakness in TTMT’s credit metrics and/or a decline in support from the project sponsors could exert pressure on the rating.