MARC Ratings has affirmed its AAAIS rating on TNB Western Energy Berhad’s (TNB Western) outstanding RM3.7 billion sukuk with a stable outlook. TNB Western is a funding vehicle for TNB Manjung Five Sdn Bhd, the owner and operator of a 1,000MW coal-fired power plant in Manjung, Perak, under a power purchase agreement (PPA) with Tenaga Nasional Berhad (TNB). The PPA expires in 2042.
The rating is equalised to TNB’s corporate credit rating of AAA/Stable based on its unconditional and irrevocable rolling guarantee to cover any shortfall in the finance service account. The rating also considers TNB’s undertaking to maintain full ownership (directly/indirectly) in TNB Western and TNB Manjung Five throughout the tenure of the sukuk.
Fiscal 2023 revenue from capacity payments (CP) was marginally lower than budgeted by 1.29% at RM322.5 million due to minor forced outages in June and July 2023 that have since been resolved. As at end-December 2023, the power plant’s unplanned outage rate at 1.99% had improved to well below the PPA limit of 6.00% (end-June 2023: 7.73%).
Energy payments (EP) declined by 10.12% y-o-y to RM1.5 billion in 2023, largely due to the lower applicable coal prices (ACP) used to calculate the EP. Weak coal prices, particularly in 1H2023 where there was a high negative price differential between TNB Manjung Five’s fuel cost and ACP, led to pre-tax loss of RM107.8 million. Coal prices have stabilised since 4Q2023, alleviating concerns about further loss from negative fuel variance over the near term.
Cash flow from operations (CFO) declined to RM140.6 million (2022: RM246.2 million) in line with the lower revenue. CFO is projected at RM208.5 million in 1H2024. Coupled with cash balances of RM147.6 million as at end-January 2024, it would be sufficient to cover its upcoming sukuk profit and principal obligations of RM200.9 million due on July 30, 2024. The average projected finance service coverage ratio is 2.14x with a minimum of 1.39x. The cash flow coverage can withstand moderate sensitivity scenarios such as a 10% increase in variable operating expenses, and a 2% reduction in CP and EP.