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27 Jul | Friday
RAM Ratings reaffirms Tanjung Bin Energy’s AA3 sukuk rating
RAM Ratings has reaffirmed the AA3/Stable rating of Tanjung Bin Energy Issuer Berhad’s (TBE Issuer or the Company) RM3.29 billion Sukuk Murabahah (2012/2032). The rating reflects TBE Issuer’s strong debt-servicing ability despite the deteriorating operational performance of Tanjung Bin Energy Sdn Bhd’s (TBE) 1,000MW ultra-supercritical coal-fired power plant in Tanjung Bin, Johor (the Plant). TBE Issuer’s financial commitments are supported by back-to-back payments from TBE pursuant to a Turnkey Contract between the two companies. As such, RAM recognises the strong credit link between these entities and views them in aggregate. The rating is also supported by the favourable terms of TBE’s power purchase agreement (PPA) with Tenaga Nasional Berhad (TNB). 
 
The Plant had experienced a series of outages between November 2017 and February 2018 due to continued challenges with boiler tube leaks. Consequently, TBE had to suffer reductions in available capacity payments (ACPs). Nonetheless, the loss in revenue is within RAM’s sensitivities. Looking ahead, we have assumed further ACP reductions under our sensitised cashflow projections but expect the Company’s debt-servicing ability to remain intact. 
 
Meanwhile, TBE is building a new jetty to cater for the Plant’s additional coal requirement. Construction is on track to meeting the scheduled completion date of end-March 2019, with actual progress standing at 57.73% as at 12 March 2018 (planned: 56.04%). Pending completion of the jetty, TBE has been incurring barging costs for coal delivery. Our assessment shows that TBE Issuer can withstand a three-month delay in the completion of the jetty, higher barging costs and a cost overrun amounting to 5% of the contract price, which is to be borne by TBE.
 
Given that the Plant’s operating performance was within RAM’s sensitivities, TBE Issuer registered a finance service coverage ratio (FSCR, with cash balances, post-distribution) of 2.46 times – above our projected 1.99 times – on the most recent payment date of the Sukuk on 16 March 2018. The Company is projected to register a minimum coverage ratio of 1.50 times throughout the remaining tenure of the Sukuk despite stress-test assumptions of higher unscheduled outage rates, barging costs, and operational and capital expenditure. The rating also takes account of the Company’s healthy liquidity profile, which is buffered by standby letters of credit – expected to be renewed every six months – to ensure that the Finance Service Reserve Account is fully funded. 
 
A wholly owned subsidiary of TBE, TBE Issuer is the contractor tasked with developing, constructing and financing the Plant for TBE. TBE, which is fully owned by Malakoff Corporation Berhad, in turn has a 25-year PPA with TNB to finance, construct and operate the Plant.
 
 
Analytical contact
Chin Wynn, CFA
(603) 7628 1170
chinwynn@ram.com.my
 
Media contact
Padthma Subbiah
(603) 7628 1162
padthma@ram.com.my
 
Date of release: 27 July 2018
 
The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.
 
RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.
 
Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.
 
Published by RAM Rating Services Berhad
Ó Copyright 2018 by RAM Rating Services Berhad
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