MARC Ratings has affirmed Tenaga Nasional Berhad’s (TNB) corporate credit rating at AAA with a stable outlook.
TNB’s strong credit profile is underpinned by its monopoly over electricity transmission in Peninsular Malaysia and Sabah, as well as its status as the largest domestic electricity producer, distributor and retailer. A supportive Incentive-Based Regulation framework enables TNB to recover fuel costs and earn a commensurate rate of return for capex. Given its strategic importance to national energy infrastructure and a track record of government support, including grants and subsidy reimbursements, a two-notch uplift has been incorporated into its credit rating.
Under Regulatory Period 4 (RP4) (2025-2027), the Energy Commission revised the base tariff to 45.40 sen/kWh (from 39.95 sen/kWh in RP3). The government approved total capex of RM42.8 billion (RP3: RM23.6 billion), comprising RM26.55 billion in base capex and RM16.27 billion in contingent capex. The investment aims to boost the country’s economy and ready the electricity network for its energy transition agenda. Total borrowings stood at RM57 billion as at end-June 2025; this is expected to rise but not significantly, as the capex will be partly funded by internal cash and offset by debt amortisation.
Effective 1 July 2025, the government replaced the semi-annual Imbalance Cost Pass-Through mechanism with the Automatic Fuel Adjustment, allowing monthly fuel cost adjustments of up to 10% of the Allowed Generation Tariff (with government approval required for adjustments beyond that). This change allows for more timely cost recovery, eases working capital needs, and supports TNB’s liquidity — a positive development, in MARC Ratings’ view.
In 1H2025, TNB’s revenue rose 17.4% y-o-y to RM32.9 billion, driven by the higher RP4-approved base tariff. Overall electricity demand grew by 0.8% y-o-y, led by a 6.5% increase in commercial usage, primarily from data centre developments, while industrial and domestic demand declined. Operating profit margin remained steady at 13.8%. Performance is expected to remain stable, with RP4 demand growth projected at 4%-5% (vs. 1.7% in RP3), partly driven by data centre demand.
TNB maintained a robust net operating cash flow of RM11.7 billion in 1H2025 and a solid cash balance of RM20.3 billion as of end-June 2025. Continued strength is expected, underpinned by growing electricity demand and improved cash flow visibility under RP4.
MARC Ratings is aware of an ongoing issue concerning tax incentives under Schedule 7B of the Income Tax Act 1967. TNB’s application is pending approval from the Minister of Finance, and discussions with the relevant authorities are ongoing. The rating agency will continue to monitor developments.