RAM Ratings maintains stable outlook on local power sector
PETALING JAYA: RAM Ratings Services Bhd has maintained its stable outlook on the Malaysian power sector amid the impending liberalisation of the industry in Peninsular Malaysia.
It said Tenaga Nasional Bhd and Sarawak Energy Bhd – both rated AAA/Stable – continue to exhibit healthy operational and financial profiles. Sabah Electricity Sdn Bhd (not rated) also boasts a strong financial position, underscored by the government’s solid support.
“The sector’s still-supportive regulatory landscape helps uphold the credit strength of the vertically integrated utility companies and independent power producers within their jurisdictions,” RAM said in a statement in conjunction with the publication of its industry insight, entitled “Malaysian Power Sector: Long Road to Liberalisation”.
The rating agency said the power industry is one of the most active sectors tapping the domestic bond market with a five-year average annual issuance of about RM8.4 billion for 20152019.
Outstanding power bonds and sukuk amounted to some RM65 billion as at endJanuary 2020, equivalent to about 9% of Malaysia’s total outstanding corporate bonds.
RAM said the power sukuk market was driven by renewable energy (RE) projects in 2019.
“While the facility sizes are much smaller than those of conventional power projects, the RE segment has been driving Malaysia’s Sustainable and Responsible Investment sukuk market.”
RAM said it has rated numerous prominent firsts in the SRI sukuk market along with innovative financing structures that have involved the pooling of multiple plants that enable smaller IPPs to successfully tap the market.
Infrastructure and utilities ratings co-head Chong Van Nee expects financing structures to evolve to help bridge the funding needs of RE producers given that the award of RE projects become more competitive.
“That said, the key considerations of sound project economics backed by strong counterparties and robust cashflow matching are still critical to our credit analysis,” Chong added.