MARC has affirmed its AA-IS rating on Tanjung Bin O&M Berhad’s outstanding RM235 million Sukuk Wakalah with a stable outlook.
The rating affirmation reflects the credit strength of Tanjung Bin O&M’s parent, Malakoff Power Berhad (MPower), which has provided an unconditional and irrevocable undertaking to top up any shortfall in the finance service reserve account (FSRA) for the Sukuk Wakalah. On this basis as well as the operational and financial linkages between the issuer and its parent, MARC has applied a full credit substitution approach to Tanjung Bin O&M’s credit risk assessment with MPower’s senior credit of AA-/Stable. Wholly owned by Malakoff Corporation Berhad, MPower undertakes operations and maintenance (O&M) for its parent’s majority-owned domestic independent power producers (IPP).
Tanjung Bin O&M is the O&M provider of the 2,100MW power plant owned by sister company Tanjung Bin Power (TBP) and has partially transferred operations to MPower via a sub-operations and maintenance agreement (sub-OMA) which mitigates operational risk. The OMA and sub-OMA are coterminous with the 25-year power purchase agreement between TBP and Tenaga Nasional Berhad (TNB, AAA/Stable).
Tanjung Bin O&M mainly derives its revenue from fixed and variable operating fees which are mainly based on the TBP plant’s net electricity output. In 1H2021, revenue was lower by 8.1% y-o-y to RM159.1 million mainly due to the 12.4% y-o-y decline in the TBP plant’s electricity output which was due to 68 days of planned outages for overhaul work on two generating units. Coupled with higher expenses incurred from overhaul work, Tanjung Bin O&M recorded pre-tax loss of RM30.6 million. Cash flow from operations (CFO) stood at RM70.9 million with CFO interest coverage of 9.25x.
In 2022, the higher number of days for scheduled outages of 138 days (2021: 83 days) at the TBP plant for scheduled maintenance and inspections would impact Tanjung Bin O&M’s operating performance for the year. Any liquidity risk is mitigated by Tanjung Bin O&M’s strong cash balance of RM252.5 million as at end-June 2021.