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The ability of MPower to fulfill its cash deficiency support undertaking (as defined herein) and its obligations under the sub-OMA is integral to the assigned rating and acts as the rating floor for the transaction. MPower undertakes to fund deficiencies in Tanjung Bin O&M’s six-month finance service reserve via equity injection into Tanjung Bin O&M throughout the tenure of the Sukuk (cash deficiency support undertaking) and assumes all Sukuk payment obligations on a full and timely basis in the event the OMA is terminated due to reasons other than default or breach by Tanjung Bin O&M.
The undertakings are designed to absorb the risks of operating cash flow shortfalls and the remotely low probability, high impact event of contract termination. MARC considers this contract monetisation transaction as highly leveraged with the purchase of assets and liabilities funded by the sukuk and equity on a 72:28 basis.
The rating acknowledges recent events leading to the unscheduled outages between December 2012 and April 2013 at the Tanjung Bin power plant which culminated in a reduced dispatch level of 63.0% for the first four months of 2013.
The cause of the unscheduled outages have been identified as prolonged high load demand on the coal-fired power plant arising from the curtailment of gas supply to the power sector and possible coal type suitability issues.
MPower’s support for Tanjung Bin O&M is evidenced by the unconditional and irrevocable undertaking that will be provided to the security agent of the Sukuk prior to the issuance whereby MPower undertakes to pay the liquidated damages and maintenance costs for the forced outages in the event that Tanjung Bin O&M is obligated to pay TBP the liquidated damages and maintenance costs for the forced outages.
MPower will also waive its right to pursue a claim against Tanjung Bin O&M in relation to the said payments.
MARC views the cash deficiency support undertaking provided by MPower throughout the tenure of Sukuk as particularly important to address the risks of operational challenges which may lead to difficulty in generating sufficient operating cash flow to cover finance service obligations.
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