RAM Ratings reaffirms Mukah Power's debt ratings

Published on 17 August 2011
RAM Ratings has reaffirmed the respective AA3 and A2 ratings of Mukah Power Generation Sdn Bhd’s (MPG or the Company) Senior Sukuk Mudharabah Programme of up to RM665 million (2006/2021) (Senior Sukuk) and Junior Sukuk Mudharabah Programme of up to RM285 million (2006/2031) (Junior Sukuk); both long-term ratings have a stable outlook. The 2-notch rating distinction between the Senior and Junior Sukuk reflects the Junior Sukuk’s subordination in terms of cashflow priority as well as its strong equity-like features.



MPG is an independent power producer (IPP) incorporated to construct, own, operate and maintain a 270-MW coal-fired power plant (the Plant) in Matedeng, Mukah Division, Sarawak, under a Power Purchase Agreement (PPA) with Syarikat SESCO Berhad (SESCO). The Company is viewed to have a strong business profile, underscored by the favourable terms of its PPA with SESCO. MPG is entitled to earn full capacity payments (CPs) irrespective of the quantum of electricity generated, subject to meeting certain performance requirements. It also qualifies for energy payments (EPs) on electricity sold to SESCO, with a partial guarantee on EPs from the minimum take-or-pay obligation of 1,400 million kWh per year (equivalent to an estimated load factor of 77%).

The Plant clocked in higher-than-expected scheduled maintenance hours in FYE 31 December 2010 (FY Dec 2010) and 1Q FY Dec 2011. This had been due to a major inspection that had taken longer than expected, and also more scheduled maintenances carried out on SESCO’s requests. The downtime had caused the rolling equivalent availability factor (EAF) of the Plant to dip below the PPA threshold of 85%, which had subsequently kept MPG from claiming full CPs. For FY Dec 2010, MPG earned RM3.62 million less CPs from a potential RM110.81 million - albeit within RAM Ratings’ expectations. In 1Q FY Dec 2011, the shortfall in CPs came up to RM2.36 million. In this regard we highlight that the PPA requirement of maintaining a rolling EAF of more than 85% leaves little room for further outages – both scheduled and unscheduled – in the near term, thus rendering MPG susceptible to further shortfalls in CPs.

Based on RAM Ratings’ sensitivity analysis, which includes capacity degradation after a decade of operations, reductions in plant availability and load levels, MPG is expected to generate an annual pre-financing cashflow of RM92 million to RM110 million. We have also assumed the Company’s distributions to shareholders will be made while adhering to its financial covenants throughout the tenures of the Senior and Junior Sukuk (i.e. on a forward-looking basis, as opposed to only the year of assessment). As such, MPG’s Senior Sukuk Service Coverage Ratio (Senior SSCR) (with cash balances, post-distribution and calculated on principal repayment dates) is expected to reach a minimum of 1.51 times and an average of 1.66 times throughout the tenure of the Senior Sukuk. Additionally, our analysis indicates that the expected minimum and average Sub-Finance Service Coverage Ratios (Sub-FSCRs), which measure the Junior Sukuk’s repayment coverage, will come up to 1.03 times and 1.13 times, respectively, throughout the tenure of the Senior Sukuk. We note that excessive distributions in the near term, although allowed under the distribution covenants, may weaken the Company’s debt coverage in the future.

Media contact
Adelia Abdul Rahim
(603) 7628 1055
adelia@ram.com.my