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Press Release
16 May | Tuesday
RAM Ratings reaffirms TNB’s AAA/Stable rating
RAM Ratings has reaffirmed the AAA/Stable rating of Tenaga Nasional Berhad’s (TNB or the Group) USD500 million-equivalent Murabahah MTN Programme (2005/2025), premised on the Group’s continued strong performance and strategic position as Malaysia’s national electricity company. Based on our rating methodology for government-linked entities, TNB is highly likely to receive extraordinary government support in the event of financial distress, given its role that is deemed critical to the nation and the Group’s very strong relationship with the Government.

Besides its near-monopoly on the transmission and distribution of electricity across Peninsular Malaysia and Sabah, TNB has also remained a dominant player in the domestic power-generation business, controlling 56% of the former’s generating capacity as at end-August 2016; this is expected to increase to approximately 57% by 2020. The Group also plays a crucial role as the sole off-taker of generating capacity and electrical energy produced by independent power producers (IPPs) in Peninsular Malaysia. The Government, on top of its special share in TNB, currently owns an aggregate 67% stake in the Group in consonance with various government agencies.
The implementation of the incentive-based regulation (IBR) framework, effective 1 January 2014, provides further stability to TNB’s returns over 3-year regulatory periods, and gives it a fuel-cost pass-through advantage every 6 months. With the increased transparency on and a more structured framework for TNB’s tariff reviews, we maintain a positive view on the IBR mechanism, which we believe should also help preserve the utility giant’s long-term financial profile.

The electricity tariff rebate of 1.52 sen/kWh has been retained for the period of January-June 2017, as overall fuel costs have been lower than those set in the benchmark fuel prices under the IBR. Looking ahead, rising fossil fuel prices, the continued removal of subsidies on regulated piped gas and the stronger USD are expected to drive the gradual elimination of rebates, thus leading to higher tariffs. However, this may be moderated by the utilisation of the stabilisation fund, which is made up of first-generation PPA savings, to offset the impact of escalating fuel costs.
Meanwhile, TNB’s adjusted gearing ratio and funds from operations debt coverage as at FY Aug 2016 remained healthy at a respective 1.17 times and 0.27 times. Moving forward, we believe that the Group aims to secure up to 5,000 MW of new generation capacity internationally by 2020. However, this may cause TNB’s financial metrics to deteriorate slightly if it takes on more borrowings to fund such acquisitions, without corresponding incremental earnings from its earlier purchases.

To date, the Group has made several international acquisitions amounting to approximately RM2.24 billion; these have been partly funded by the first drawdown of its USD750 million (RM3.13 billion) sukuk.

 
source: RAM Rating Services Berhad
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