KUALA LUMPUR (July 6): S&P Global Ratings said Tenaga Nasional Bhd's (TNB) financial profile will remain steady despite the government's announcement to keep electricity tariffs unchanged for the period of July-December 2022 in the face of significant increases in fuel and generation costs.

In a statement on Wednesday (July 6), S&P said it expects the utility company to have adequate liquidity to manage its working capital requirements.

The agency said this is because it expects TNB (BBB+/Stable/--) to receive sufficient subsidies from the government in a timely manner to cover actual uncontrollable fuel and generation costs.

S&P said the timing of the government's subsidy payments will be key to TNB's credit profile because the company is now dependent on these payments to support its stand-alone credit profile of "bbb-".

It said the timing and frequency of these subsidy payments are uncertain because there is no precedent.

It said the government of Malaysia will allocate subsidies of RM5.8 billion.

Of that, it said RM2.3 billion will be used to cover the cost of maintaining the rebate of two sen/kWh for domestic users, and RM3.5 billion to cover the cost of maintaining the surcharge of 3.7 sen/kWh to be paid by non-domestic users (versus the full surcharge of 11.81 sen/kWh).

“We continue to expect the regulatory environment to remain generally supportive for TNB because the company will still be able to recover the higher-than-expected fuel and generation costs under the regulated Imbalance Cost Pass-Through mechanism.

“TNB will also be able to fully recover the semi-annual tariff surcharge of 3.7 sen/kWh from non-domestic users, while the remaining surcharge of 8.11 sen/kWh will be directly compensated by the government as announced,” it said.

S&P said that although TNB had yet to receive the subsidies, it expects the company to be able to manage its working capital requirements arising from higher fuel and generation costs.

“We assess TNB's liquidity as adequate because the company's sources of liquidity are likely to exceed use by at least 1.1 times over the next few months until March 31, 2023.

“TNB had cash and short-term investments of about RM9 billion as of March 31, 2022.

“We project funds from operations of about RM14.4 billion over the coming months until March 31, 2023,” it said.

S&P said these sources of liquidity are sufficient for the company to meet its liquidity needs during that time.

“We estimate TNB will repay debt maturities of about RM8.8 billion, meet working capital requirements of RM2.5 billion to RM3.5 billion, capital expenditure (capex) of RM7.5 billion and pay dividends of about RM2.2 billion.

“The company recently raised RM4 billion in sukuk notes, with the proceeds to be used for working capital needs and capex,” it said.

At 11.46am, TNB had shed 1.12% or nine sen to RM7.93, with 716,700 shares traded so far.