RAM Ratings sees incentive-based rule positive for NUR Power

  • Business
  • Thursday, 02 Aug 2018

KUALA LUMPUR: RAM Ratings sees the implementation of incentive-based regulation, similar to that of Tenaga Nasional Bhd, as favourable to NUR Power Sdn Bhd. 

It said on Thursday this framework enables NUR Power to pass through to its customers all cost fluctuations stemming from gas prices and energy supply rates for electricity purchases from Tenaga, via the imbalance cost-pass-through mechanism. 

“This will help stabilise the group’s long-term financial profile. We expect NUR Power’s cashflow-generating capability to remain intact on account of healthy demand at the Kulim Hi-Tech Park. 

“This, coupled with continuous debt repayments, support our expectation of a further strengthening of the group’s already sturdy balance sheet,” it said.

RAM Ratings reaffirmed the respective AAA(bg)/Stable and AAA(fg)/Stable ratings of Tranche 1 and Tranche 2 of NUR Power's RM650mil guaranteed Sukuk Mudharabah (2012/2027). 

The ratings reflect the irrevocable and unconditional guarantees extended by Maybank Islamic Bhd and Danajamin Nasional Bhd, which enhance the credit profile of the Sukuk beyond NUR Power’s credit strength.

NUR Power is a small-scale vertically integrated power utility, and the sole electricity supplier to the Kulim Hi-Tech Park under a mandate from the Government of Malaysia, effective until May 27, 2033). 

NUR mainly serves industrial customers, which contribute approximately 97% of its electricity sales. 

However, RAM said the group remains susceptible to sector- and customer-concentration risks. 

NUR Power’s top seven customers – First Solar, Infineon, Silterra, Intel, Fuji, Panasonic and KIG – collectively consumed about 79.7% of the group’s electricity sales in 2017 (past three-year average: 81.3%). 
In 2017, the group’s electricity sales fell 5.6% on-year – the first time since the economic downturn in 2012, mainly due to reduced take-up by its largest customer, First Solar (M) Sdn Bhd. 

First Solar, a solar panel manufacturing company, took down part of its manufacturing capacity for a factory retooling, to enable manufacturing of a new line of photovoltaic module. 

First Solar completed the exercise in May 2018 and is now steadily ramping up its production, after which electricity demand from First Solar is expected to be higher than prior to the retooling exercise. 

RAM said NUR Power inevitably depends on the performances of its key customers engaged in high-technology industries, which are largely from the electrical and electronic as well as solar panel-manufacturing industries; they are susceptible to externalities, including protectionist policies, industry cycles and economic downturns. 

NUR has maintained the commendable operating track record of its power plant in the last five years, since both its combined-cycle gas-turbine blocks became operational in 2012. 

Its margins narrowed in FY Dec 2017 due to lower revenue from electricity sales and elevated costs as a result of higher gas prices and scheduled maintenance expenses. 
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