RAM Ratings assigns AA1 to YTL Power’s RM5b debt notes

KUALA LUMPUR: YTL POWER INTERNATIONAL BHD [] has proposed to issue up to RM5 billion under its medium-term notes (MTN) programme (2011/2036).

RAM Rating Services Bhd said on Friday, Aug 5 that it had assigned a long-term rating of AA1 to the proposed MTN.

“At the same time, we have reaffirmed the respective AA1/P1 and AA1 ratings of the company’s RM2 billion commercial papers/MTN programme (2007/2014) and RM2.2 billion serial redeemable bonds (2008/2013); all the long-term ratings have a stable outlook,” it said.

YTL Power is involved in power generation, water and sewerage services, electricity transmission and telecommunications.

RAM Ratings said the ratings reflected the group’s robust business profile stemming from its regulated asset base, particularly its investments in power and water-sewerage services via its unit YTL Power Generation Sdn Bhd (YTLPG) in Malaysia, PowerSeraya Ltd (PowerSeraya) in Singapore, and Wessex Water Ltd in the UK.

RAM Rating said YTLPG and PowerSeraya had completed another year of commendable operations while Wessex Water Services remained among the best-performing water-and-sewerage companies in the UK.

The ratings agency said its cashflow analysis was based on YTL Power’s stable returns (in the form of dividend income) from its investments in the utilities sector, to support its company-level debt load. Inflows from the company’s utility investments were expected to be relatively stable due to their regulated business activities.

“Our assessment of the company’s proposed MTN programme is based on the expected drawdown of up to RM2.2 billion in 2011 under this facility, followed by another RM2 billion in 2014 – as indicated by the management - for the refinancing of its existing debt facilities.

“Given that the issuance proceeds will be solely for refinancing purposes, there will not be any additional company-level debt burden on YTLPI; as at end-December 2010, its adjusted company-level debt load stood at RM5.63 billion, translating into an adjusted gearing ratio of 0.71 times. At the same time, the group boasted a sizeable cash pile of RM6.24 billion that is free from encumbrances; these funds will be readily available to YTL Power if required. Nonetheless, any deviation from our assumptions may warrant a reassessment of the ratings,” it said.

RAM Ratings highlighted that YTL Power group’s capital structure remained constrained by its hefty debt burden.

However, most of these debts reside with its subsidiaries that generate stable and predictable income from regulated assets; they are ring-fenced and have been structured on a non-recourse basis to YTL Power.

The ratings remain constrained by the competitive pressure faced by YTL Power’s telecommunications arm (60%-owned YTL Communications Sdn Bhd). YTL Ppwer’s appetite for acquisitions may also expose it to additional operations, political, regulatory and currency risks.