MARC has affirmed its AA-IS rating on Malakoff Power Berhad’s (MPower) RM5.4 billion Sukuk Murabahah with a stable outlook. MPower is the operations and maintenance (O&M) operator of its parent company Malakoff Corporation Berhad’s (Malakoff) majority-owned domestic power plants. The rating affirmation considers the consolidated credit strength of MPower and Malakoff, taking into account the significant operational and financial linkages between the two entities, underpinned by the entities’ common dependency on the performance of its power plant portfolio and the Kafalah guarantee provided by Malakoff in favour of the sukukholders. Revenue earned by MPower under O&M contracts with the aforementioned power plants and cash flows from preference shares and loan stock holdings issued by power generating subsidiaries of Malakoff constitute the main repayment sources for the rated sukuk, as well as inter-company advances/repayments by its parent company.
The rating is supported by the stability and moderately high predictability of revenue and cash flows available for the servicing of the sukuk. The rating further reflects the overall adequate operating performance of Malakoff’s power plant portfolio, which is subject to long-term power purchase agreements (PPA) with a high credit quality offtaker, Tenaga Nasional Berhad (AAA/Stable). Constraining the rating is Malakoff’s high leverage position and the group’s high reliance on residual cash flows from its key subsidiaries, Tanjung Bin Power Sdn Bhd (TBP) and Segari Energy Ventures Sdn Bhd (SEV). In 2017, Malakoff’s domestic power plants performed within MARC’s expectations except Tanjung Bin Energy Sdn Bhd (TBE) which saw a reduction in its available capacity payments (ACP) due to unplanned outages. Meanwhile, TBP received full ACP and full fuel cost pass-through in the corresponding period.