KUALA LUMPUR: Standard & Poor’s Ratings Services has revised downwards its outlook on Tenaga Nasional Bhd to negative from stable on weakened profitability.
The ratings agency said yesterday that it affirmed its BBB+ long-term corporate credit rating and the axA+/axA-1 Asean regional scale rating on the company. It also affirmed the BBB+ issue rating on TNB senior unsecured notes.
“We revised the outlook to negative because we expect TNB’s weakened profitability and higher operating costs to continue to weaken its significant financial risk profile,” said S&P credit analyst Rajiv Vishwanathan.
“Our view is based on our anticipation that higher fuel prices stemming from a shortage of gas will continue to burden the company’s cash flows. Moreover, the company is likely to incur capital expenditure on its hydroelectric and thermal power projects over the next 12 months.”
He said the standalone credit profile of TNB is bbb-. The ratings agency incorporated its opinion of a “high” likelihood the government of Malaysia (foreign currency A-/Stable/A-2; local currency A/Stable/A-1; axAA+/axA-1) would provide timely and sufficient extraordinary support to the company in the event of financial distress.
However, Rajiv cautioned that it could downgrade TNB if its relationship with the government changes materially or if there is a likelihood the extraordinary support could be reduced.
Another factor is if TNB’s credit protection ratios weaken due to lower than expected demand for power, high fuel costs, or debt-funded investments in generation projects.
A ratio of funds from operations (FFO) to adjusted debt that falls below 10% on a sustained basis would indicate such weakness.
S&P said it could revise the outlook to stable if the Malaysian government provides some fuel price relief that enables TNB to recover losses from fuel supply shortages.
“We believe that a more transparent and defined tariff regime could improve the company’s financial risk profile sustainably, such that its ratio of FFO to adjusted debt remains above 10%,” Rajiv said.
“We view TNB’s business risk profile as satisfactory. The company is vulnerable to increases in costs, which it is unable to fully pass through to consumers,” he added.
Of concern is that TNB’s gas supply was severely curtailed over the six months ended Aug 31. The company’s fuel costs have risen because it has had to use expensive alternative fuels.
Rajiv said TNB expects the shortage to reduce following partial restoration of its gas supplier Petroliam Nasional Bhd’s (foreign currency A-/Stable/-; local currency A/Stable/-; axAA+/-) Bekok C unit.
“However, TNB anticipates some shortfall until Petronas completely restores the unit or commissions a new liquefied natural gas terminal.
“We expect TNB’s financial risk profile to remain significant over the next two to three years. Any interim cost-sharing solution from the government to compensate TNB for the losses due to curtailment of gas supply will likely reduce some pressure on cash flows in the next 12 months,” Rajiv said.
This article appeared in The Edge Financial Daily, November 10, 2011.
The ratings agency said yesterday that it affirmed its BBB+ long-term corporate credit rating and the axA+/axA-1 Asean regional scale rating on the company. It also affirmed the BBB+ issue rating on TNB senior unsecured notes.
“We revised the outlook to negative because we expect TNB’s weakened profitability and higher operating costs to continue to weaken its significant financial risk profile,” said S&P credit analyst Rajiv Vishwanathan.
“Our view is based on our anticipation that higher fuel prices stemming from a shortage of gas will continue to burden the company’s cash flows. Moreover, the company is likely to incur capital expenditure on its hydroelectric and thermal power projects over the next 12 months.”
He said the standalone credit profile of TNB is bbb-. The ratings agency incorporated its opinion of a “high” likelihood the government of Malaysia (foreign currency A-/Stable/A-2; local currency A/Stable/A-1; axAA+/axA-1) would provide timely and sufficient extraordinary support to the company in the event of financial distress.
However, Rajiv cautioned that it could downgrade TNB if its relationship with the government changes materially or if there is a likelihood the extraordinary support could be reduced.
Another factor is if TNB’s credit protection ratios weaken due to lower than expected demand for power, high fuel costs, or debt-funded investments in generation projects.
A ratio of funds from operations (FFO) to adjusted debt that falls below 10% on a sustained basis would indicate such weakness.
S&P said it could revise the outlook to stable if the Malaysian government provides some fuel price relief that enables TNB to recover losses from fuel supply shortages.
“We believe that a more transparent and defined tariff regime could improve the company’s financial risk profile sustainably, such that its ratio of FFO to adjusted debt remains above 10%,” Rajiv said.
“We view TNB’s business risk profile as satisfactory. The company is vulnerable to increases in costs, which it is unable to fully pass through to consumers,” he added.
Of concern is that TNB’s gas supply was severely curtailed over the six months ended Aug 31. The company’s fuel costs have risen because it has had to use expensive alternative fuels.
Rajiv said TNB expects the shortage to reduce following partial restoration of its gas supplier Petroliam Nasional Bhd’s (foreign currency A-/Stable/-; local currency A/Stable/-; axAA+/-) Bekok C unit.
“However, TNB anticipates some shortfall until Petronas completely restores the unit or commissions a new liquefied natural gas terminal.
“We expect TNB’s financial risk profile to remain significant over the next two to three years. Any interim cost-sharing solution from the government to compensate TNB for the losses due to curtailment of gas supply will likely reduce some pressure on cash flows in the next 12 months,” Rajiv said.
This article appeared in The Edge Financial Daily, November 10, 2011.
