Moody's today said it has placed Tenaga Nasional under review for a possible ratings upgrade due to an improved operating performance by the power giant.

The ratings agency said a review of Tenaga's Baa3 senior unsecured rating was prompted by growth in demand for electricity, lower fuel costs and decreasing capital expenditure.

Tenaga's third-quarter results showed an improving operating profile, Moody's Investors Service said in a statement.

Tenaga Nasional Bhd last month said its third quarter net profit stood at RM205.3 million compared with a net loss of 394.7 million ringgit the year before.

Tenaga's revenue rose to RM4.133 billion from RM3.822 billion in the previous quarter.

Government's support

Moody's said the company's electricity sales grew 8.2 percent in the nine months to May, while operating margin improved to 17.3 percent from 16.2 percent, adding that the increased use of coal in Tenaga's fuel mix helped the company's operating performance.

Tenaga's capital expenditure for the nine-month period, on an annualised basis, was significantly lower compared with the last three years, it said.

Moody's said the planned divestment of ownership in the Kapar Power Station and other independent power producers would help Tenaga reduce its "relatively high leverage and increase its financial flexibility."

"The rating action also reflects evidence of the government's ongoing willingness to indirectly support the operating profile of Tenaga through such mechanisms as the fuel subsidisation scheme and cost sharing arrangements for increased fuel costs," it said.

In its review, Moody's said it would focus on Tenaga's ability to maintain the improvement in its operating performance over the medium term.

Moody's would also look at whether the trend in lower capital expenditure was likely to continue for the next two to three years.

Other factors considered are the potential for debt reduction as a result of lower capital expenditure requirements and potential asset divestments, it said. - AFP