MARC Ratings has affirmed its AA-IS rating on Malakoff Power Berhad’s (MPower) outstanding RM1.77 billion Sukuk Murabahah, and MARC-1IS/AA-IS ratings on MPower’s RM1.2 billion Islamic Commercial Papers/ Islamic Medium-Term Notes (ICP/IMTN) Programmes, under which the current outstanding is RM5.0 million. The ratings outlook is stable.
MPower is wholly owned by Malakoff Corporation Berhad (Malakoff), and provides operations and maintenance (O&M) services to independent power producers (IPP) majority-owned by its parent. MARC Ratings considers the overall credit profile of Malakoff, in view of the strong operational and financial linkages between the parent and MPower. The Kafalah guarantees provided by Malakoff on both sukuk in favour of MPower’s sukukholders further underscore the rating approach.
The ratings reflect the predictable cash flows from Malakoff’s IPPs that are adequate to service MPower’s obligations. These cash flows are underpinned by long-term power purchase agreements (PPA) with Tenaga Nasional Berhad (AAA/Stable). MARC Ratings notes of two expiring PPAs in the next three years, but potential earnings implications are not expected to be material considering their relatively low contribution to group revenue (about 6% in 2023).
The rating agency believes that contributions from Malakoff’s environmental solutions subsidiary, Alam Flora (AAIS/Stable), and the group’s expansion into renewable energy projects would also help mitigate risks associated with its contract expirations. Alam Flora has a long-term concession agreement with government agency Solid Waste Management and Public Cleansing Corporation for waste collection and public cleansing in Pahang, Putrajaya and Kuala Lumpur, and is also undertaking environmental solutions projects. Renewable energy developments under the group include an ongoing 84.0MW hydro power plant in Kelantan and a 22.1MW waste-to-energy plant in Melaka. Moderating the ratings are plant performance risks and renewable project execution risks.
In 1H2024, Malakoff’s revenue reduced slightly to RM4.6 billion (1H2023: RM4.65 billion), mainly due to lower energy payments owing to lower coal prices y-o-y. The group returned to profit in 1H2024, registering pre-tax profit of RM259.3 million amid steadier coal prices compared to the sharp declines seen in 2023. Cash flow from operations remained steady at RM559.3 million and liquidity remained healthy with cash balances of RM2.9 billion as at end-June 2024. Group borrowings have gradually reduced to RM8.5 billion as at end-June 2024. Planned capex will require additional funding, but the rating agency does not anticipate a material impact on Malakoff’s leverage as the amount of new borrowings is not expected to be more than the scheduled amortisation of existing borrowings.
As an O&M operator, MPower’s revenue is derived from fixed and variable (dispatch-based) O&M fees from the group’s thermal IPPs. In 1H2024, revenue grew 27.8% y-o-y on greater variable O&M payments following higher dispatch levels at Malakoff’s plants. In line with the improved top-line performance, the company recorded pre-tax profit of RM41.7 million. Combined cash balances at MPower and holding company Malakoff stood at RM171.2 million as at end-September 2024, and will be built up further to meet sukuk obligations of RM190.0 million in December 2024.