[RAM] RAM Ratings assigns preliminary AAA rating to Kimanis Power's proposed RM300 mil Sukuk Wakalah Facility

RAM Ratings has assigned a preliminary AAA/Stable rating to Kimanis Power Sdn Bhd’s (KPSB or the Company) proposed RM300 mil Sukuk Wakalah Facility (2025/2035) (the proposed sukuk), the proceeds of which will be used primarily to refinance existing borrowings and fund initial reserves. 

Established as a 60:40 joint venture between PETRONAS Gas Berhad (PGB or the Group) and Yayasan Sabah Group, KPSB operates a 285 MW combined-cycle gas turbine power plant (the Plant) in Kimanis, Sabah – the state’s largest electricity generator.

The preliminary rating incorporates a rating uplift from PGB – the transaction’s primary sponsor – whom we opine is highly incentivised to support KPSB beyond what is contractually provided for. Our assessment is underscored by the Plant’s strategic importance to PGB’s expansion plans in Sabah, as well as the facility’s close integration with the Group’s downstream energy portfolio. These factors translate into a ‘strong' likelihood of extraordinary financial support which results in the final rating beyond the transaction’s standalone profile. 

A core subsidiary of Petroliam Nasional Berhad (PETRONAS), PGB is Malaysia’s largest gas infrastructure operator, owning and operating key assets like the Peninsular Gas Utilisation pipeline and regasification terminals. Backed by long-term contracts and stable earnings under the Incentive-Based Regulation framework, the Group maintains a strong financial standing and superior credit profile, which reinforces its capacity to provide extraordinary support if required.

On a standalone basis, the Plant has demonstrated excellent performance since commencing operations, generating sturdy and stable annual operating cashflows that are underpinned by a 21-year availability-based power purchase agreement (PPA). Payments from the sole offtaker, Sabah Electricity Sdn Bhd (SESB), have historically come in within 1 month of invoice date. Barring the deduction for a one-off 55-day outage in 2023, KPSB has consistently received full available capacity payments and fully recovered its fuel cost for compliance with PPA performance parameters. 

We take comfort in KPSB’s experienced in-house operation and maintenance (O&M) team, PETRONAS’s technical support and the long-term Contractual Services Agreement with General Electric that includes a structured maintenance framework and performance-linked guarantees to ensure the Plant maintains its sterling operating performance. We note that KPSB, under shared services agreements, will also provide O&M and administration services to its sister company, Kimanis Power (Dua) Sdn Bhd (KPSB Dua), which will develop a new 100 MW gas-fired power plant adjacent to KPSB’s facility. While these arrangements introduce interdependency risk and expose KPSB to potential liabilities for service delays or underperformance, these risks are viewed to be credit neutral to the transaction.

Under the terms of the transaction, KPSB will issue an irrevocable Letter of Undertaking to provide funds via intercompany financing to KPSB Dua, strictly limited to funds available in the Liquidity Support Account (LSA), which will be maintained at a minimum RM25 mil. Replenishment of the LSA will be at KPSB’s discretion, subject to maintaining post-distribution finance service coverage ratios (FSCRs) of at least 1.65 times, failing which, KPSB undertakes not to make any distributions. 

KPSB’s debt-servicing capability is superior, underscored by its resilient cashflow profile and the well spread-out sukuk repayment structure. RAM’s sensitised cashflow analysis – which assumes reduced plant availability, higher operating expenses, zero fuel margins, shared service revenue and heftier dividend payments – indicates minimum and average post-distribution FSCRs (with cash balances, calculated on payment dates) of 1.66 times and 3.33 times, respectively, over the Sukuk’s tenure. KPSB’s inherent FSCR without cash reserves still averages a solid 2.08 times, dipping below 1.65 times only in three years due to planned major maintenance and a tariff step-down.

Like other independent power producers, the Company remains exposed to single-project and regulatory risks, although we expect the latter to be muted in Sabah, where energy security is a key priority. We further recognise that the timeliness of payments from SESB may be affected by the eventual transfer of its ownership to the state government. For now, the federal government has committed to providing continued funding until 2030.  


Analytical contacts
Tan Yan Choong
(603) 3385 2502
yanchoong@ram.com.my

L Nurisya Abdullah 
(603) 3385 2492 
nurisya@ram.com.my