MARC Ratings has affirmed its rating of AAAIS on TNB Western Energy Berhad’s (TNB Western) outstanding sukuk of RM3.7 billion with a stable outlook.
The rating affirmation reflects the equalisation with the corporate credit rating of Tenaga Nasional Berhad (TNB) of AAA/Stable. The equalisation is premised on the strength of the unconditional and irrevocable rolling guarantee from TNB to fund shortfalls in the finance service account and its undertaking to maintain full ownership (directly/indirectly) in TNB Western and TNB Manjung Five Sdn Bhd throughout the tenure of the sukuk. TNB Western is the funding vehicle of TNB Manjung Five for the construction of a 1,000MW ultra-supercritical coal-fired power plant in Manjung, Perak.
As at end-July 2022, the plant had not experienced any major operational issues since completing the rectification works on its air heater in October 2021. Its unplanned outage rate (UOR) remained within the unplanned outage limit (UOL), partly supported by a UOR reset to 0% at the start of the second contract year block (2022-2026). Given the UOR performance, TNB Western is on track to achieve its budgeted capacity payments for 2022.
TNB Manjung Five recorded capacity payments of RM202.9 million in 2021, which is 22.6% lower than the budgeted amount as the UOR was higher than the UOL of 6% as stipulated in the power purchase agreement. It recorded energy payments of RM914.4 million and was able to fully pass through its fuel costs to TNB. TNB Western met its sukuk profit payment of RM100.9 million in July 2022 without calling on the shareholder’s guarantee. Based on cash flow projections, minimum and average finance service coverage ratios (FSCRs) stand at 1.20x and 2.01x. Our sensitivity analysis shows that the project’s cash flow coverage can withstand mild stress scenarios such as increase in variable operation and maintenance expenses and decrease in capacity payments.