RAM Ratings reaffirms AA1 rating of Sarawak Energy’s sukuk programme

Published on 06 August 2012

RAM Ratings has reaffirmed the AA1 long-term rating (with a stable outlook) of Sarawak Energy Berhad's ("SEB" or "the Group") Sukuk Musyarakah Programme of up to RM15 billion (2011/2036). SEB is the Sarawak State Government’s (“the State”) wholly owned, vertically integrated electricity group with a monopoly over the generation, transmission and distribution of electricity in Sarawak.

The rating reflects SEB’s strategic role as the electricity provider in the State and key facilitator of the Sarawak Corridor of Renewable Energy (“SCORE”), as well as the strong implicit support from the State given SEB’s critical role in the functioning of the State. Although there is no guarantee that obligates the State to support SEB, SEB is perceived to benefit from a “very high” likelihood of extraordinary support from the State in the event of financial distress based on our rating methodology on government-linked entities.

The rating is, however, moderated by the Group’s exposure to demand risk arising from the immediate overcapacity following the commencement of the obligated power take-up from the Bakun hydroelectric plant (“Bakun”); Bakun is the first of a series of such capacity plant-ups in Sarawak under the SCORE’s ambitions. The Group is also exposed to concentration risk arising from the relatively larger industrial off-takers that will establish operations in the SCORE. While these risks are moderated to some extent by the terms of the agreements with its clients as well as the Group’s diverse clientele, SEB is still vulnerable to economic down-cycles since the majority of its customers are from the manufacturing industry. Alongside the capacity-expansion drive, SEB’s balance sheet and debt-servicing ability are envisaged to be stretched in the near to medium term as power demand from off-takers will lag behind the considerable plant-ups ahead.

Adjusting for the take-or-pay obligations for the purchase of power from Bakun - which RAM Ratings views as SEB’s financing obligation - SEB’s adjusted debt and gearing ratio stood at a respective RM12 billion and 3.18 times as at end-fiscal 2011 (unadjusted debt: RM3.95 billion; unadjusted gearing ratio: 1.05 times). Meanwhile, its adjusted funds from operations debt coverage (“FFODC”) stood at 0.05 times as at end-2011 (unadjusted FFODC: 0.14 times). Considering the sheer size of its adjusted debt load stemming from the doubling of its generating capacity by 2014, the Group’s adjusted gearing is expected to peak at 4.68 times in fiscal 2014. Meanwhile, SEB’s adjusted FFODC is envisaged to hover around 0.05 times in the near to medium term.

Media contact
Jocelyn Chiang
(603) 7628 1124
jocelyn@ram.com.my