[RAM] RAM Ratings reaffirms AA3/Stable rating of Jimah Energy Ventures' sukuk

RAM Ratings has reaffirmed the AA3/Stable rating of Jimah Energy Ventures Sdn Bhd’s (JEV or the Company) RM4.85 bil Senior IMTN Facility (2005/2025). The reaffirmation reflects our expectation that the Company will maintain its satisfactory operating performance whilst generating robust cashflow. JEV is an independent power producer (IPP) that owns and operates a 1,400 MW coal-fired power plant in Port Dickson, Negeri Sembilan (the Plant, comprising Unit 1 and Unit 2 at 700 MW each), under a 25-year Power Purchase Agreement (PPA) with Tenaga Nasional Berhad (TNB).

The Plant has shown sustained improvement in its operational performance since the start of the current contract year block (2018-2021). It managed to clinch full Available Capacity Payments (ACPs) and Daily Utilisation Payments (DUPs) in 2020 as the unscheduled outage rate1 (UOR1) and peak-hour UOR2 were still within the respective PPA limits of 6% and 3.5%. Although JEV bagged full ACPs in 5M 2021, it recorded a small DUP reduction as UOR2 had breached the 3.5% limit as at end-May 2021. Due to a major overhaul of Unit 1 in 2020 and minor repair works for both units in 2021, JEV might not meet the PPA’s minimum availability target (AT) of 91% for this contract year block. That said, the consequent AT penalty is estimated to be immaterial at about 0.1% of the Company’s annual turnover.

Being a main revenue source besides ACPs and DUPs, energy payments (EPs) were lower in 2020 primarily due to reduced electricity demand amidst the Covid-19 pandemic. A negative fuel margin, which hampers the Company’s ability to fully pass on its fuel costs to TNB, was also recorded for the year in light of the heat rate breaches at Unit 2 and temporary fall in coal prices. However, improved heat rates courtesy of several initiatives JEV has implemented at Unit 2, alongside soaring coal prices at the turn of the year, turned the Company’s fuel margin positive in 5M 2021. In the long run, JEV can wholly pass through its fuel costs should it operate within the stipulated PPA heat-rate requirements.

Despite the topline erosion caused by less EPs, the Company’s pre-tax profit climbed to RM469 mil (FY Dec 2019: RM312 mil) on account of lower depreciation and financing costs. JEV posted a strong finance service coverage ratio (FSCR, with cash balances, post-distribution) of 2.42 times on the repayment date of 12 November 2020, surpassing our previous forecast of 2.09 times as a result of operational outperformance against our sensitised assumptions. Even after including some outages and distribution payments of RM87 mil in our sensitised cashflow projections throughout the remaining tenure of the Senior IMTN, JEV’s debt-servicing ability is anticipated to stay solid with minimum and average annual FSCRs of 1.50 and 1.78 times. The management has highlighted that it will adhere to the distribution covenants on a forward-looking basis, instead of solely in the year of assessment.

JEV derives some financial flexibility in the form of its payments to the holder of its RM895 mil Junior Debt – Special Power Vehicle Berhad. These are subordinated to the payments on the Senior IMTN. As permitted under the transaction, the Company may reduce its Junior Debt payments if required. Like other IPPs, JEV remains exposed to regulatory and single-project risks.


Analytical contact
Timothy Goh 
(603) 3385 2496
timothy@ram.com.my

Chong Van Nee, CFA 
(603) 3385 2482
Vannee@ram.com.my