MARC Ratings has affirmed its AA-IS rating on Jimah East Power Sdn Bhd’s (JEP) outstanding RM8.72 billion Sukuk Murabahah with a stable outlook.
The rating affirmation is underpinned by JEP’s predictable cash flows from its 2×1,000-megawatt (MW) ultra-supercritical coal plant under a 25-year power purchase agreement (PPA) with Tenaga Nasional Berhad (TNB) (AAA/stable). The rating also incorporates the operational and financial linkages with TNB, which has an indirect 70%-stake in JEP, and the credit strength of the project sponsors, which include Mitsui & Co., Ltd (15.0%) and The Chugoku Electric Power Co., Inc (15.0%).
In 1H2022, JEP recorded capacity payments (CP) of RM480.3 million, 9.6% lower than budgeted due to the unplanned outage rate (UOR) of Unit 1 exceeding the PPA-stipulated unplanned outage limits (UOL) following boiler tube leakages. We note that rectification works have been completed, with the costs mostly borne by the engineering, procurement and construction contractor. For its Unit 2, the UOR has remained below the UOL.
In 1H2022, higher-than-budgeted energy payments (EP) of RM1,096.6 million were recorded, mainly due to higher fuel costs passed through given the uptrend in coal prices during the period.
JEP recorded revenue of RM917.4 million in 1Q2022, which accounted for 31.2% of forecast revenue in 2022. Revenue is expected to be higher for the year as coal prices remain elevated. Its liquidity position as reflected by cash and bank balances of RM699.4 million as at end-July 2022 is sufficient to cover the next profit payment and principal repayment of RM411.2 million in December 2022. Based on projections, minimum and average finance service coverage ratios (FSCR) remain adequate at 1.43x and 1.61x, above the covenanted 1.25x. The FSCR can withstand moderate stress, such as an additional 2% increase in heat rate degradation and unplanned outage rate throughout the sukuk tenure.