IBR provides stability

“The IBR framework provides stability to TNB’s returns over threeyear regulatory periods, and gives it a fuel cost pass-through advantage every six months.

“Accordingly, we maintain a positive view of the framework, which we believe should help preserve the utility giant’s longterm financial profile,” RAM affirmed.

“Given higher fossil fuel prices, the continued removal of subsidies on regulated piped gas and the stronger US dollar, we anticipate a gradual elimination of rebates, which will lead to higher tariffs.

“However, the government may choose to utilise the Kumpulan Wang Industri Elektrik fund ( previously known as the stabilisation fund), that is made up of first- generation power purchase agreement savings, to offset the impact of escalating fuel costs.”

Meanwhile, TNB’s adjusted gearing ratio as at end of financial year 2017 and funds from operations debt coverage in fiscal 2017 stayed strong at a respective 1.11 times and 0.27 times despite higher debt levels, owing mainly to the issuance of US$ 750 million ( RM3.13 billion) of sukuk and a drawdown of RM2 billion of sukuk wakalah.

Factoring in a purchase consideration of 77.37 million pounds (about RM418.39 million) for the recent acquisition of an 80 per cent stake in two renewable energy companies in the UK, RAM said the group’s adjusted gearing and FFODC remained healthy.

“The group aims to secure up to 5,000 MW of new generation capacity internationally by 2025,’ it said.

“However, TNB may need to incur more debt to fund future acquisitions, which could potentially weaken its financial metrics in the absence of corresponding earnings accretion.”