PETALING JAYA: RAM Ratings Services Bhd has maintained its stable outlook on the Malaysian power sector amid the impending liberalisation of the industry in Peninsular Malaysia.
It said Tenaga Nasional Bhd (TNB) and Sarawak Energy Bhd – both rated AAA/Stable – continue to exhibit healthy operational and financial profiles. Sabah Electricity Sdn Bhd (not rated) also boasts a strong financial position, underscored by the government’s solid support.
“The sector’s still-supportive regulatory landscape helps uphold the credit strength of the vertically integrated utility companies and independent power producers (IPPs) within their jurisdictions,“ RAM said in a statement in conjunction with the publication of its industry insight, entitled “Malaysian Power Sector: Long Road to Liberalisation”.
With a five-year average annual issuance of about RM8.4 billion for 2015-2019, the power industry is one of the most active sectors tapping the domestic bond market.
Outstanding power bonds and sukuk summed up to some RM65 billion as at end-January 2020, equivalent to about 9% of Malaysia’s total outstanding corporate bonds.
Mirroring the government’s agenda, the power sukuk market was driven by renewable energy (RE) projects in 2019. While the facility sizes are much smaller than those of conventional power projects, the RE segment has been driving Malaysia’s Sustainable and Responsible Investment (SRI) sukuk market.
RAM has rated numerous prominent firsts in the SRI sukuk market along with innovative financing structures that have involved the pooling of multiple plants that enable smaller IPPs to successfully tap the market.
Infrastructure and utilities ratings co-head Chong Van Nee said as the award of RE projects become more competitive, it expects financing structures to evolve to help bridge the funding needs of RE producers.
“That said, the key considerations of sound project economics backed by strong counterparties and robust cashflow matching are still critical to our credit analysis,” Chong added.
The main highlights of its latest publication include the power industry masterplan promotes market efficiency; reforms credit neutral to TNB and existing IPPs, new risks for future projects; goal of 20% RE mix to complement fossil fuel-powered generation; Malaysian sukuk market still the main funding source; and innovative financing structures facilitate access to sukuk market.
