RAM Ratings reaffirms YTL Power AA1 debt rating

PETALING JAYA: RAM Ratings has reaffirmed the AA1/Stable rating of YTL Power International Bhd's (YTLPI) Medium-term note (MTN) programme of up to RM5 billion (2011/2036).
The rating, it said, continues to reflect the group's stable business profile, underscored by its diversified business base across various countries.
"The relatively steady cashflow from the group's core utilities division, which is underpinned by favourable long-term concession agreements, mitigates its exposure to cyclical industries," RAM said in a statement yesterday.
Meanwhile, YTL's rating remained moderated by the Group's strained balance sheet and heavy debt burden.
Notably, more than half of its debt is parked under operating subsidiaries that are self-sufficient, and these borrowings are concession-related, ring-fenced and non-recourse to YTLPI.
"Given that the Group's treasury functions are centralised, we derive substantial comfort from its ability to tap its subsidiaries for additional dividends," RAM said.
During the review period, YTLPI's geographical and earnings diversity, with core long-term concession-based investments in power, water and sewerage services in the UK, Singapore and Malaysia, enabled the group to maintain a strong operating and financial showing despite some softening in the Singaporean power sector where competition is rising.
"YTLPI's near- to medium-term earnings, nonetheless, remain vulnerable to downside risks owing to additional generation capacity in the Singapore electricity market as well as the imminent expiry of the power purchase agreements of the Group's 2 Malaysian power plants in September 2015," noted RAM's co-head of Infrastructure and Utilities Ratings, Davinder Kaur Gill.
To this end, she said, the group's highly stable UK-based Wessex Water Services Limited will continue to anchor its earnings, despite the UK water regulator's intention to open up the market to competition.
The move is envisaged to have minimal impact on Wessex's position, given its market-leading operational and regulatory performance.
"YTLPI's sizeable cash coffers of RM8.96 billion as at end-June 2014 further allow the group to pursue opportunities to expand its utilities business either locally or abroad" Gill added.