SINGAPORE: Standard & Poor’s Ratings Services (S&P) has affirmed its ‘BBB+’ long-term corporate credit rating on Tenaga Nasional Bhd (TNB) with a stable outlook.

In a statement, the rating agency said it also affirmed its ‘axA+’ long-term and ‘axA-1’ short-term Asean regional scale ratings on the company.

At the same time, it affirmed its ‘BBB+’ issue ratings on TNB’s senior unsecured notes.

“We affirmed the rating because we expect Tenaga (TNB) to maintain its strong market position and financial strength over the next 12-18 months despite heavy capital expenditure plans,” S&P credit analyst Abhishek Dangra said.

“We expect the tariff mechanism in Malaysia to lower the company’s exposure to volatile fuel costs.

“However, the fuel-cost adjustment mechanism has yet to establish a track record, particularly in case of under-recoveries (tariffs not allowing full recovery of fuel costs) and needs Cabinet approval. Meanwhile, any delays in adjustment may expose Tenaga to fluctuations in fuel costs,” he said.

TNB’s dominant position as an integrated power provider in Malaysia underpins its “satisfactory” business risk profile.

The company contributes about 50 per cent of Malaysia’s installed capacity, and is the sole owner and operator of peninsular Malaysia’s electricity transmission and distribution network.

TNB’s revenues, while concentrated in Malaysia, are well distributed between domestic customers.

“We believe the full implementation of a semi-annual fuel-cost adjustment mechanism effective January 2015 can bring greater stability to TNB’s cash flows,” Dangra said.

In February 2015, the government lowered the tariffs from March to June 2015 because of falling fuel costs and over-recoveries in 2014.

“We believe similar timely tariff revisions will be essential even in case of under-recoveries, considering that the prices of many fuels such as coal and oil are at multi-year lows.

“Such timely revisions can ensure that Tenaga is not exposed to the risk of an increase in fuel costs (after adjusting savings from the lower cost of PPAs),” he said.

TNB’s “significant” financial risk profile assessment incorporates S&P’s view that the company will maintain its margins and financial strength in 2015 and 2016.

S&P assessed TNB’s liquidity as “adequate” as it expects the company’s liquidity sources to exceed liquidity uses by at least 1.2x over the next 12-24 months.

The stable outlook reflects its expectation that TNB’s operating and financial performances will be stable over the next 12-18 months. – Bernama