RAM Ratings Assigns AAA/Stable Rating to TNB's Proposed Sukuk

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1. IB Press Release Service Published on :​ ​IslamicBanker.com Publications: ​https://www.islamicmarkets.com/publications RAM Ratings Assigns AAA/Stable Rating to TNB's Proposed Sukuk 25 July 2017 RAM Ratings has assigned an AAA/Stable rating to Tenaga Nasional Berhad's (TNB or the Group) proposed Islamic Medium-Term Notes Sukuk Wakalah Programme of up to RM5 billion in nominal value (2017/2067) (Proposed Sukuk Programme), premised on the Group's strategic position as the national utility company coupled with its solid business and healthy financial profiles. The utilisation of the Proposed Sukuk Programme includes financing TNB's capital expenditure, investments and working capital requirements. Based on our rating methodology for government-linked entities, TNB enjoys a very high likelihood of extraordinary government support in the event of financial distress, given its role that is deemed critical to the nation and the Group's very strong relationship with the Government. The Government, on top of its special share in TNB, jointly with various government agencies owns an aggregate 62% stake in the Group. Besides its near-monopoly on the transmission and distribution of electricity across Peninsular Malaysia and Sabah, TNB has remained a dominant player in the domestic power-generation business, controlling 56% of the peninsula's total installed capacity as at end-February 2017 this is expected to increase to approximately 57% by 2020. The Group also plays a crucial role as the sole off-taker of generating capacity and electrical energy produced by independent power producers in Peninsular Malaysia. Despite the Government's decision to raise the regulated price of piped gas to RM22.70/mmBtu in July 2017 (January 2017: RM21.20/mmBtu), TNB's average net tariff was maintained at 37.01 sen/kWh with a 2.54 sen/kWh imbalance cost pass-through (ICPT) subsidy for the period between July and December 2017. Although fuel costs were higher than benchmark fuel prices under the incentive-based regulation, which should result in a tariff increase of 1.02 sen/kWh above the base rate of 38.53 sen/kWh, the Government had decided to absorb the difference and retained the existing rebate of 1.52 sen/kWh. Rising fossil fuel prices, the continued removal of subsidies on regulated piped gas and the stronger USD are expected to drive the gradual elimination of rebates, thus leading to higher effective tariffs. However, this may be moderated by the utilisation of the stabilisation fund to offset the impact of escalating fuel costs, as was done to subsidise the 2.54 sen/kWh ICPT subsidy.
2. IB Press Release Service Published on :​ ​IslamicBanker.com Publications: ​https://www.islamicmarkets.com/publications Meanwhile, TNB's adjusted gearing ratio and funds from operations debt coverage are envisaged to stay within RAM's expectations after factoring in the full issuance of RM5 billion from the Proposed Sukuk Programme, albeit weaker at a respective 1.25 times and 0.20 times for FY Aug 2017 (FY Aug 2016: 1.17 times and 0.27 times). However, the drawdown amount is expected to be less than RM5 billion. The Group aspires to secure up to 5,000 MW of new generation capacity internationally by 2020. This could cause TNB's financial metrics to deteriorate slightly if it takes on more borrowings to fund such acquisitions, without corresponding incremental earnings from earlier purchases. Organisation Name: News Type: RAM Rating Services Berhad RATING ANNOUNCEMENT Source: BNM Announcements Media Contact Padthma Subbiah (603) 7628 1162 padthma@ram.com.my Disclaimer: The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security's market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations. RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings' credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications. Similarly, the disclaimers above also apply to RAM Ratings' credit-related analysis and commentaries, where relevant.