MARC Ratings has affirmed its AA+IS rating on Kapar Energy Ventures Sdn Bhd’s (KEV) outstanding RM470.0 million Sukuk Ijarah with a stable outlook. The rating benefits from a two-notch uplift from the company’s standalone rating of AA- due to potential support from Tenaga Nasional Berhad (TNB) (AAA/Stable). TNB indirectly owns 60.0% of equity interest in KEV.
KEV owns and operates the Kapar Power Station, comprising three generating facilities (GF) with a combined nominal capacity of 2,200MW. The repairs for a leakage from its boiler tube at GF3 in February 2023 led to unplanned outage, resulting in the unplanned outage rate (UOR) at GF3 to exceed the 6.00% limit set under KEV’s Power Purchase Agreement (PPA) with TNB. For this reason, RM11.2 million was deducted from its capacity payments (CP) in 1H2023. MARC Ratings, nevertheless, views this as manageable. KEV was also not able to fully pass through its fuel cost in 1H2023 primarily due to coal price movements. Coal prices have softened since early 2023 resulting in a lower applicable coal price (ACP) (used to calculate energy payments (EP)) compared to the average coal cost to KEV.
In contrast, KEV benefitted from high coal prices in 2022. It was able to fully pass through its fuel costs then as the variance between its average coal cost and the ACP was positive. This yielded higher EP and boosted its pre-tax profit to RM390.2 million in 2022 (2021: RM59.5 million). KEV also received full CP of RM440.3 million in 2022, as UOR at its three GFs all came within the PPA limit. The company, however, generated negative cash flow from operations (CFO) in 2022 due to a large increase in pending receivables related to the EP. Nevertheless, CFO turned positive in 1H2023 after it received the outstanding EP. As at July 4, 2023, cash in designated accounts stood at RM391.7 million, sufficient to meet KEV’s next profit payment and principal repayment amounting to RM173.0 million in 2024.
Under the base case cash flow projections, financial service coverage ratio is forecast to be sufficient through sukuk maturity in 2026, averaging 2.21x, with a minimum projected at 1.89x.