MARC affirms Tenaga Nasional’s ratings at AAA

KUCHING: Malaysian Rating Corporation Bhd (MARC) has affirmed Tenaga Nasional Bhd’s (TNB) issuer rating of AAA and sukuk rating of AAAIS on TNB’s RM2 billion Al-Bai’ Bithaman Ajil Islamic Financing Bonds (sukuk).

The ratings outlook is stable.

The ratings incorporate a two-notch rating uplift based on MARC’s assessment of a high likelihood of government support given TNB’s critical role as the country’s principal energy provider.

On a standalone basis, TNB’s credit strength lies in its continued monopoly in electricity transmission and distribution (T&D) in Peninsular Malaysia and Sabah, its significant electricity generation capacity of 14,590 megawatts (MW) and its strong operational track record.

The rating agency also notes that the internal reorganisation of TNB is on track.

The transfer of assets to TNB Power Generation Sdn Bhd ( Genco) was completed on October 1, 2020 while the transfer of assets to TNB Retail Sdn Bhd (Retailco) is expected to be completed in January 2021.

In MARC’s view, the reorganisation does not have any material impact on TNB’s credit profile as the key T&D businesses will remain with TNB at the holding company level while the transfer of assets will be held under wholly owned subsidiaries.

For the first nine months of 2020 (9M20), TNB’s electricity demand fell by 6.2 per cent year on year (y- o-y) in Peninsular Malaysia, arising mainly from the imposition of the movement control order (MCO) between March and May 2020.

Notwithstanding this, TNB’s revenue cap businesses (T&D network, single buyer, and grid system operations) remain insulated from demand risk under the Incentive-Based Regulation (IBR) framework.

In 9M20, there was a regulatory adjustment of RM533.3 million to reinstate the revenue of these businesses based on the revenue target under the IBR for the current regulatory period.

Profitability was affected by higher finance cost and depreciation related to TNB’s newly commissioned power plant, Jimah East Power, which led to a lower net profit of RM2,414.6 million (9M19: RM3,860.9 million).

Its OPBITDA margin, however, has remained resilient at 40.9 per cent (9M19: 36.8 per cent), supported by an imbalance cost pass-through (ICPT) mechanism.

The stable outlook reflects MARC’s expectation that TNB will broadly maintain its credit profile in the current challenging environment and that the group will adhere to prudent financial management.