AM Ratings has assigned preliminary ratings to Pulau Indah Power Plant Sdn Bhd’s (PIPP or the Company) proposed RM2.905 bil Sukuk Wakalah Bi Al-Istithmar (2020/2038) (the Proposed Sukuk), as follows:
|RM2.655 bil Class A||AA3/Stable|
|RM250 mil Subordinated Class B||AAA(fg)/Stable|
PIPP is jointly owned by Worldwide Holdings Berhad (Worldwide, 75%) and Korea Electric Power Corporation (KEPCO, 25%) (collectively known as the Sponsors). Under a 21-year Power Purchase Agreement (PPA) with Tenaga Nasional Berhad (TNB), PIPP has been contracted to design, construct, own, operate and maintain a 1,200 MW combined-cycle gas-turbine (CCGT) power plant (the Plant or the Project) in Pulau Indah, Selangor. The Plant will consist of two single-shaft CCGT generating blocks utilising General Electric Company’s (GE) 600 MW 9HA.01 gas turbines. The scheduled commercial operations date (COD) for the Plant is targeted as 1 January 2024. Limited notice to proceed is already underway.
The proposed Class B Sukuk benefits from a guarantee from Danajamin Nasional Berhad (rated AAA/stable), as the Al-Kafalah provider. The enhanced rating of the proposed Class B Sukuk reflects Danajamin’s long-term rating. The proposed Class B Sukuk is subordinated to the proposed Class A Sukuk in terms of priority of cashflow and security.
The preliminary rating for the Proposed Class A Sukuk reflects PIPP’s sound project fundamentals, backed by favourable PPA terms. TNB (rated AAA by RAM) will make availability capacity payments to PIPP, subject to the latter meeting the requirements on the Plant’s available capacity and unscheduled outage rates. PIPP can also fully pass through its fuel costs to TNB via energy payments received from the sale of electricity, provided the Plant operates within the heat rates stipulated in the PPA.
The Project will be backed by a Long-Term Service Agreement (LTSA) with GE throughout the life of the PPA, thus providing comprehensive coverage on the gas turbines. PIPP will also be able to rely on KEPCO’s experience as an operation and maintenance service provider to maintain the rest of the equipment not covered by the LTSA. Meanwhile, PIPP’s projected debt coverage is deemed strong, anchored by its predictable cashflow.
The abovementioned strengths are, however, tempered by exposure of the Project to construction risk. PIPP will be able to leverage the experience of KEPCO and the engineering, procurement, construction and commissioning (EPCC) consortium (comprising POSCO Engineering & Construction Co Ltd, PEC Powercon Sdn Bhd and Mitsubishi Corporation) in constructing new plants, to ensure timely delivery, especially when navigating the repercussion of the COVID-19 pandemic. EPCC cost will be contained through a lump-sum turnkey contract.
Our sensitised scenario incorporates a contingency sum (6% of the EPCC contract sum) that will cover a six-month delay in completion and cost overruns amounting to 2% of the EPCC contract sum. This is deemed adequate when coupled with the Sponsors’ contingent equity contribution of RM30 mil. The EPCC Contract also provides for liquidated damages that will amply compensate payments to TNB in the event of any construction delay or shortfall in performance guarantees.
Based on RAM’s stressed scenario, PIPP’s debt-servicing metrics are deemed strong, as reflected by its respective minimum and average annual senior finance service coverage ratios (with cash balances) of 1.50 and 1.66 times throughout the tenure of the proposed RM2.655 bil Senior Class A Sukuk – which commensurate with its rating. Our sensitised cashflow analysis assumes operational hiccups upon COD and at the end of each contract-year block, zero fuel margins and hefty operating expenditure.
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