Moody's Maintains TNB's A3 Stable Rating

KUALA LUMPUR, April 28 (Bernama) -- International rating agency, Moody's Investors Service Inc, has maintained Tenaga Nasional Bhd’s (TNB) A3 senior unsecured ratings with stable outlook following a within-expectation first half financial result and positive earnings growth outlook. Vice President and Senior Analyst Abhishek Tyagi said based on the results, TNB’s funds from operations to total debt ratio and retained cash flow to debt was around 29 per cent and 23 per cent respectively on an annualised basis and are within the rating expectation. “TNB's A3 rating reflects the application of Moody's rating methodology for government-related issuers (GRIs). This approach assumes a very high likelihood of support from the Malaysian government in a stress situation,” he said. He said the stable outlook reflects Moody's expectation that TNB would maintained its dominant position in Malaysia's power sector and that there will be no material adverse changes in the regulatory environment in the near to medium-term. “We expect the earnings growth for TNB over next two to three years to be driven by the commissioning of 3 gigawatt coal generation capacity and a new 50 megawatt solar project,” he said. Tyagi said given Moody’s expectation of high government support, TNB's rating is resilient to a weakening in the company’s financial fundamentals. He said TNB’s rating could be upgraded if Malaysia's sovereign rating is upgraded, primarily reflecting the company’s strategic importance and its expectation for high level of support in case of need. “The BCA (baseline credit assessment) could be raised if the government displays a track record of raising tariffs to allow TNB to recover variable costs through the imbalance cost pass-through adjustments,” he said. On the other hand, he said a partial sale of the government's majority ownership could prompt a review of TNB’s rating, especially if the sale indicated that the company’s importance to the government has decreased. “Because such a development would affect the level of government support incorporated in TNB’s final A3 rating and stable outlook,” he said. He said Moody's would also considered lowering the BCA if TNB's underlying credit strength weakens which can be due to substantial deterioration in operating performance and regulatory changes which negatively affect the company’s financial performance such as if the incentive based regulation mechanism fails to pass-through changes in variable costs. He added that the BCA could also be lowered due to aggressive debt funded acquisitions. TNB's earnings before interest, tax, depreciation and amortisation for the first half ended Feb 28, 2017, increased by 4.3 per cent year-on-year (Y-o-Y) to RM7.28 billion compared to the same period last year. After adjusted for forex translation loss and reinvestment allowance, TNB's first half net profit reported a 5.2 per cent decline mainly due to increased provision on electricity debtors amounting to RM400 million. -- BERNAMA