MARC Ratings has affirmed its AAAIS rating on TNB Northern Energy Berhad’s outstanding sukuk of RM1.32 billion with a stable outlook.
The rating and outlook are equalised to Tenaga Nasional Berhad’s (TNB) corporate credit rating of AAA/stable, primarily based on the strength of the commitment TNB has extended through an unconditional and irrevocable rolling guarantee to fund any shortfalls in the finance service account, as well as its undertaking to maintain full ownership in TNB Northern through TNB Prai Sdn Bhd. TNB Northern is the funding vehicle for TNB Prai, which operates a 1,071.43MW combined-cycle gas turbine power plant (comprising two 535.715MW units) in Seberang Perai Tengah, Penang under a 21-year power purchase agreement (PPA) with offtaker TNB.
The plant’s unplanned outage rate (UOR) continued to improve in 2H2021. Of its two generating units, Unit 20’s UOR has returned to within PPA limits of below 4%, standing at 2.19% as at end-December 2021 (end-May 2021: 4.19%). Unit 10’s UOR remained within limits as well, standing at 2.17% as at end-December 2021. As a result, capacity payments (CP) for FY2021 increased to RM200.8 million (2020: RM194.4 million), close to its budgeted amount. Energy payments (EP), however, decreased by 7.2% to RM1,176.4 million in 2021 (2020: RM1,267.8 million) due to lower gas prices. Accordingly, TNB Prai posted lower revenue of RM1,382.5 million in FY2021 (FY2020: RM1,469.1 million).
While TNB Prai was not able to fully pass through its fuel cost due to heat rates continuing to exceed PPA limits, the variance narrowed to RM16.1 million compared to RM21.6 million in 2020. Coupled with higher CP and lower finance costs, pre-tax profit improved to RM45.4 million (FY2020: RM33.4 million).
Under base case cash flow projections, TNB Prai’s minimum and average finance service cover ratios (FSCR) with cash declined to negative 0.57x and 0.92x (2021: 0.27x and 1.76x), following substantial upward revisions in capex requirements of RM141.9 million for additional inspection and maintenance costs.
Designated account balances of RM171.1 million as at March 31, 2022, are more than sufficient to meet the upcoming semi-annual sukuk profit and principal obligations of RM59.1 million in May 2022. However, in the longer term, shortfalls in cash for repayments from 2027 onwards are expected to be covered by shareholder advances under the rolling guarantee.