EESB was incorporated to design, construct, own, operate and maintain the largest gas power plant in Malaysia, with a capacity of 2,242 MW combined-cycle, gas-turbine power plant in Alor Gajah, Melaka, Malaysia. Proceeds from the proposed sukuk, amounting to RM5.21 billion, will mainly be utilised to fund the construction of the plant.
The preliminary rating reflects EESB’s strong project economics, underscored by stable cashflow generation, resulting in a minimum finance service coverage ratio of 1.50 times under RAM’s sensitised case upon completion of the plant, commensurate with an AA3 rating.
“Given the technology used in the turbine is untested and no other plant of this scale is currently in commercial operation globally, the company is exposed to technology risk,” highlights Chong Van Nee, RAM’s Co-Head of Infrastructure & Utilities Ratings. “As the plant is under construction stage and equity will be progressively injected into the project throughout the construction period, this also exposes the project to construction-related risk and uncertainty of funding.”
The company is entitled to full available capacity payments regardless of the quantum of electricity generated, as long as it meets performance requirements under the 21-year power purchase agreement (PPA) signed with Tenaga Nasional (TNB). EESB can also fully pass through fuel costs to TNB via energy payments received from selling electricity, provided that the plant operates within heat rates stipulated in the PPA. RAM Ratings points out that the credit profile for TNB is "sturdy".
The technology risk associated with General Electric (GE)'s 9HA.02-model gas turbine, which can achieve an efficiency rate of over 60%, will be largely addressed via EESB’s long-term service agreement (LTSA) with GE for the operations and maintenance of the gas turbines, steam turbines and generators, RAM Ratings says. GE will provide further support in respect of the insurability of the plant and a special warranty to cover collateral damages.
The lump-sum turnkey engineering, procurement and construction (EPC) contract signed with Hyundai Engineering Company, Hyundai Engineering & Construction Company and Hyundai Engineering Malaysia (collectively, the EPC contractors) provides for performance guarantees, an extended defect liability period of three years and liquidated damages for delays. This mitigates construction risk, RAM Ratings said. In addition, EESB will be insured against any financial loss arising from delays.
The company’s parent, Edra Power Holdings, is described as having a sturdy business and financial profile, which also allays concerns to some extent on funding uncertainty, RAM Ratings said.
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