KUALA LUMPUR (Dec 19): MARC Ratings Bhd has affirmed the AAAIS rating for Tenaga Nasional Bhd’s (TNB) unit TNB Power Generation Sdn Bhd (TPGSB) for its sukuk wakalah programme of up to RM10 billion. 

In a statement, MARC said TPGSB’s credit strength primarily reflects its sizeable 55.4% generation market share in Peninsular Malaysia, and its predictable earnings arising from long-term power purchase agreements (PPAs) between its power plant operators and TNB. 

Most of the PPAs provide availability-based payments, and allow for fuel cost pass-through, subject to the power plants meeting the PPAs' operational performance requirements, it said. 

TPGSB owns and manages 14 power plants, and manages three power plants for TNB, with total capacity of 15,755MW as at end-September 2022. 

“Based on significant financial and operational linkages between the entities, MARC has equalised the TPGSB’s rating to TNB’s AAA/stable rating. TNB’s rating incorporates a two-notch uplift premised on the rating agency’s assessment of a very high likelihood of government support to the TNB group, given its strategic role in energy generation, transmission, and distribution for the Malaysian economy,” said the rating agency. 

For the first half of 2022 (1H2022), TPGSB posted a higher revenue of RM10.5 billion, compared with RM7.6 billion for 1H2021, boosted by higher energy payments. 

TPGSB’s pre-tax profit rose by 12% year-on-year to RM925.5 million, while debt to operating profit before interest, tax, depreciation and amortisation stood at 5.31 times as at end-June 2022. 

Total borrowings rose to RM22.8 billion from RM21.6 billion, following a drawdown of RM1.5 billion under the rated sukuk programme, according to MARC. 

The proceeds were used for the construction of the 300MW Nenggiri hydro power plant in Kelantan, which would cost RM5.0 billion. 

“Over the next three years, borrowings will gradually rise to RM24.6 billion for further funding of the Nenggiri hydro power plant, and for the life extension programme for Sungai Perak. TPGSB’s capability to service its financial obligations remains more than sufficient. Apart from the funding cost for both hydro plants, its borrowings are under a project finance structure, where the financial obligations are covered by respective plants’ cash flows,” it added.