[MARC] MARC Ratings affirms AAAIS rating on TNB Power Generation’s sukuk

MARC Ratings has affirmed its AAAIS rating on TNB Power Generation Sdn Bhd’s (TPGSB) Sukuk Wakalah Programme of up to RM10.0 billion with a stable outlook.

TPGSB’s rating is aligned with that of its parent Tenaga Nasional Berhad (TNB, AAA/Stable), reflecting TPGSB’s role as TNB’s key energy generation arm, and their strong operational and financial linkages.

TPGSB’s credit strength reflects its sizeable 55.3% share (15,114MW) of Peninsular Malaysia’s generation capacity as of 1 September 2025. It also benefits from stable earnings, supported by long-term and availability-based power purchase agreements (PPAs) with TNB. These contracts mitigate demand risk (excluding two hydro plants) and allow for fuel cost pass-through contingent on operational performance.

The PPAs for SJ Gelugor (310MW) and SJ Putrajaya (252MW) have expired, while that for SJ Tuanku Jaafar (PD1) (703MW) is set to expire in August 2028. All three were approved for extension in November 2025 under the New Generation Capacity (NGC) programme and will remain operational from 2027 to 2029. SJ Kenyir’s expired PPA will be extended on an interim basis before entering into a new PPA with TNB under the Hydro Life Extension Programme (HLEP), similar to SSJ Sungai Perak.

Capex for the proposed SJ Kenyir HLEP is not yet finalised and is expected to be largely funded through borrowings. The PPA extensions for SJ Gelugor, SJ Putrajaya, and SJ Tuanku Jaafar (PD1) under the NGC programme will require only maintenance capex, funded internally. Based on ongoing projects (the Nenggiri hydro plant and SSJ Sungai Perak HLEP), borrowings are projected to peak at about RM22.8 billion in 2027 (as of June 2025: RM21.6 billion). Although SJ Kenyir HLEP will incur additional debt, total borrowings are expected to remain manageable. The projects are anticipated to generate stable cash flows, sufficient to cover debt obligations.

In 1H2025, revenue fell slightly y-o-y to RM9.8 billion, mainly due to SJ Gelugor’s PPA expiry and lower energy payments from weaker coal prices. Full-year 2025 revenue is expected to be largely stable. Pre-tax profit is projected to exceed that of the prior year, supported by reduced capacity payment losses following the rectification of TNB Janamanjung’s forced outage, and lower coal commercial losses amid stable coal prices. Planned capacity restoration under the HLEP and the NGC programme is expected to sustain revenue, while new projects such as the Nenggiri hydro plant will drive medium-term growth.

Cash flow from operations was healthy at RM1.41 billion in 1H2025 (1H2024: RM802.6 million), and TPGSB maintained strong liquidity with cash balance of RM5.9 billion as at end-June 2025.

Amirul Rahul, +603-2717 2905/ rahul@marc.com.my
Sharidan Salleh, +603-2717 2954/ sharidan@marc.com.my