MARC Ratings has affirmed its AA-IS rating on Jimah East Power Sdn Bhd’s (JEP) outstanding RM8.50 billion Sukuk Murabahah with a stable outlook.
The rating affirmation reflects JEP’s predictable cash flows from its 2×1,000-MW ultra-supercritical coal plant under a 25-year power purchase agreement (PPA) with Tenaga Nasional Berhad (TNB). The rating also reflects its operational and financial linkages with TNB, which has an indirect 70% stake in JEP, and the credit strength of the project sponsors, namely TNB, Mitsui & Co., Ltd (15.0%) and The Chugoku Electric Power Co., Inc (15.0%).
For 1H2023, JEP received 6.7% lower capacity payments than budgeted due to 18 days of outage and two days of deration at its Generating Unit 1 following a tripping issue at the unit’s submerged chain conveyor in May 2023. While this has now been fully rectified, the outage had contributed to Unit 1’s unplanned outage rate (UOR) of 13.1% as at end-June 2023; however, the UOR at Unit 2 has remained within the PPA limit since the start of its commercial operation. In January 2024, the UOR at both units will be reset to 0% as JEP enters its second block year (2024-2028). This will provide the units with outage headroom.
JEP recorded a loss of RM70.3 million in 1H2023 from the negative fuel variance between the applicable coal price (used for the calculation of energy payments) and the average coal cost following the fall in coal prices since early 2023. JEP was also not able to fully pass through its fuel costs to TNB as the plant recorded heat rates above the PPA requirement due to low-quality coal. This necessitated additional consumption of coal to generate per unit of electricity output.
We note that the coal stockpile at JEP’s plant has been below the PPA requirement since March 2023 due to low calorific value (CV) coal, longstanding defect issues (claimable under warranty) at JEP’s continuous ship unloading units and high electricity dispatch instruction from Single Buyer. JEP was granted an extended remedy period of until December 18, 2023, after the expiry of the initial 90-day remedy period in June 2023. JEP is now undertaking mitigation measures to meet the minimum stockpile requirement by April 2024. As such, it has requested for a further extension of the remedy period to May 11, 2024, pending approvals from Single Buyer and the Energy Commission. We view termination of the PPA at the end of the extended remedy period in December 2023 as unlikely and expect JEP to be granted a further extension based on the plant’s importance as one of the largest independent power producers with consistent dispatch demand from TNB.
As at end-September 2023, JEP had cash and bank balances of RM791.3 million, which is deemed sufficient to cover its upcoming profit payment and principal repayment of RM392.3 million due in December 2023. Minimum and average pre-distribution finance service coverage ratios with cash are projected at 1.43x and 1.61x. JEP’s cash flow can withstand moderate stresses to heat rate (additional 2% degradation) and outage rate (higher by 2%) throughout the sukuk tenure.