Posted Date: October 7, 2021
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 of Trans Thai-Malaysia (Thailand) Ltd (TTMT) for the construction of two additional gas pipelines to transport natural gas from the Malaysia-Thailand Joint Development Area in the Gulf of Thailand to the industrial city of Rayong in Thailand (TTM Phase II). TTMT is a 50:50 joint venture between project sponsors, the national oil companies of Malaysia and Thailand, namely Petroliam Nasional Berhad (PETRONAS) and PTT Public Company Ltd (PTT).
The rating reflects MARC’s assessment of a very high likelihood of support from the project sponsors 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.
The rating is not constrained by Thailand’s foreign currency rating, notwithstanding the fact that the major offtaker of TTM Phase II – PTT and project company TTMT – are domiciled in Thailand. We view that PETRONAS has a strong strategic and reputational incentive to provide ringgit liquidity in the event of transfer and 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 that is backed by a cost-plus tariff structure under the long-term service agreements with PTT and PETRONAS. Its unit capacity reservation charge – 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 1H2021, TTM Phase II’s revenue held steady at US$8.2 million on higher gas sales volume of 106,555 mmscf (1H2020: 88,178 mmscf). At TTMT’s level, revenue was up 1.0% y-o-y to US$49.5 million in 1H2021 while operating cash flow was US$48.5 million (1H2020: US$52.2 million), providing an 11.1x cover on interest. TTMT’s debt-to-equity ratio also improved to 0.79x as at end-June 2021 (end-June 2020: 0.92x), benefitting from lower borrowings and stronger shareholders’ funds.