Friday 29 Mar 2024
By
main news image

KUALA LUMPUR (Oct 10): Malaysian Rating Corp Bhd (MARC) has assigned a preliminary rating of AA-IS to Jimah East Power Sdn Bhd’s proposed sukuk programme of up to RM8.4 billion.

The outlook on the rating is stable, reflecting MARC’s expectations of timely completion and commissioning of the 2x1,000-megawatt coal-fired power plant (Project 3B) in Negeri Sembilan within the allocated budget, as well as continued strong support from the project sponsors.

"Downward rating pressures could be triggered by project delays and/or construction cost overruns which would weigh on project cash flows," said MARC.

Jimah East Power is a 70:30 joint venture between 1Malaysia Development Bhd and Japan's Mitsui & Co Ltd that was set up to finance and develop Project 3B.

In a statement today, MARC said the rating primarily reflects Jimah East Power’s predictable cash flow streams provided by the power purchase agreement's (PPA) availability-based capacity payments as well as the pass-through of fuel and variable expenses to Tenaga Nasional Bhd (TNB).

"The assigned rating also incorporates the strong commitment from the project sponsors to Project 3B, the moderate construction and operation and maintenance (O&M) risks as well as low fuel supply risk.

"The rating is, however, constrained by risks associated with the power plant design and relatively new ultra-supercritical technology as well as weaker cash flow coverage from Project 3B relative to other power plant projects in the same rating band," said the local rating agency.

MARC also noted that the fixed-price turnkey contract has adequate performance guarantees and an achievable construction schedule.

The proceeds from the sukuk will largely fund the development, design and construction of the RM11.1 billion project power plant under a 73.5:26.5 sukuk and equity financing mix.

The equity of about RM2.9 billion, which is in the form of ordinary shares and redeemable preference shares, is back-ended after the drawdown of the sukuk but before the scheduled project completion date on May 15, 2019.

Jimah East Power will also procure working capital facilities of up to RM350 million, which will be maintained throughout the sukuk tenure.

The sukuk will begin amortising from 2020 onwards with the final repayment in 2037, six years before the end of the 25-year PPA with offtaker TNB.

"MARC draws comfort that Japan’s IHI Corp and Toshiba Corp will provide technical assistance during the initial operational phase, and planned outage services for the boilers and steam turbine generators throughout the PPA tenure to resolve any difficulties that may arise from the power plant operations.

"However, given that the O&M risks are not allocated to a third party, as has been the case for similar power plant projects, Jimah East Power would need to rely on its adequate resources to meet any challenges that could arise during the operational phase," added MARC.

The rating agency also said under the base case financial projections, Project 3B is expected to generate minimum and average finance service cover ratios (FSCR) with cash balances of 1.72 times and 1.83 times respectively.

Among the factors the base case scenario incorporates are a net plant capacity factor of 85%, heat rates that are within specified limits of the PPA as well as drawdowns under working capital facilities to bridge short-term funding gaps which in turn help to smoothen Jimah East Power’s FSCR profile under mild stress scenarios.

Based on its sensitivity analysis, MARC said Project 3B’s cash flows are most susceptible to construction delays, unplanned outage limit breaches and higher-than-forecast increases in fixed costs.

MARC also noted that under more severe stress scenarios, Jimah East Power would need to rely on retained cash to meet finance service, and therefore the company would have to ensure prudent liquidity management to address any potential funding gaps.

"In this respect, MARC expects the working capital facilities to remain as reliable sources of liquidity throughout the sukuk tenure," it added.

      Print
      Text Size
      Share