Moody's has upgraded utilities giant Tenaga Nasional's senior unsecured rating with a stable outlook, the global credit ratings agency said today.

Moody's Investors Service said in a statement it raised the unsecured rating to Baa2 from Baa3.

The agency said the upgrade reflects Tenaga's improved operating performance, driven by electricity demand growth and lower fuel costs and on the continued stability of its regulatory environment.

Tenaga's operating and financial profile has improved and is expected to continue to improve, with its operating performance further supported by projected electricity sales growth and higher use of coal in its fuel mix, it said.

Conserve cash

Moody's said Tenaga's projected capital expenditure was likely to be on a declining trend as Malaysia's reserve margin has reached a level that enables Tenaga to scale back generation capacity investment, and this will help conserve cash and reduce its debt financing requirements.

"Moody's believes that Tenaga's strategic importance and government ownership enhances its credit rating, particularly since the risk of full privatization and deregulation has receded.

The agency said it sees strong evidence of the government's ongoing support for Tenaga and expects it to continue having a strong influence on the company and its operating environment.

But it said the primary risk for Tenaga Nasional Bhd was that demand does not grow as forecast, adding demand growth was fairly robust with chances of a lower reserve margin over time.