Share price is at lowest in more than 52 weeks
KUALA LUMPUR: Malaysian Rating Corporation (MARC) has affirmed its AAA rating on TNB Northern Energy Bhd’s sukuk of RM1.625bil with a stable outlook.
It said on Wednesday the rating and outlook were equalised with those of TNB Northern Energy’s ultimate parent Tenaga Nasional Bhd
(TNB), on which MARC has a senior unsecured rating of AAA/Stable.
MARC said the rating equalisation was based on TNB’s commitment in the form of an unconditional and irrevocable project completion support guarantee and post-completion rolling guarantee in favour of sukukholders.
MARC’s assessment is further underpinned by TNB’s undertaking to maintain full ownership of TNB Northern Energy in addition to the operational proximity and financial linkages between the two entities.
TNB Northern Energy was established to finance and develop a 1,071.43-megawatt combined-cycle gas turbine power plant in Seberang Perai Tengah, Penang, under a 21-year power purchase agreement (PPA) with offtaker TNB.
TNB Northern Energy is 100% owned by TNB Prai Sdn Bhd which is in turn a fully owned subsidiary of TNB.
The power plant project achieved full commercial operation date (COD) on Feb 20 following a 50-day delay from the original scheduled COD.
The delay, which was attributed to design issues and defects encountered during the commissioning phase, has resulted in liquidated damages (LD) of RM32.1mil payable to TNB.
MARC noted that TNB Northern Energy will claim a LD payment of RM59.6mil from the engineering, procurement and construction (EPC) contractor, Samsung C&T (KL) Sdn Bhd (Samsung).
The delay, coupled with the weakening ringgit, has led to a 3.9% increase above the original project cost budget to RM2,587.3mil at completion.
The increase, however, remains well within the project sponsor’s completion support guarantee of 10% or RM249mil.
The plant’s operations and maintenance (O&M) duties are carried out by related entity TNB Repair & Maintenance Sdn Bhd (TNB Remaco) under a 21-year O&M agreement.
The rating agency notes that the LD provision under the O&M agreement is not sufficient to recover any revenue losses.
This is because TNB Remaco is only liable for up to 30% in capacity payment reductions and non-reimbursable fuel cost in the event of breaches in the contracted average availability target, net output capacity and net heat rate.
Nonetheless, O&M risk is mitigated through the availability of plant warranty and long-term turbine maintenance support provided by Samsung and Siemen AG respectively. With regard to fuel supply risk, the long-term gas supply agreement with Petroliam Nasional Bhd addresses this concern.
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