RAM Ratings reaffirms AA3 rating of Mukah Power’s Senior Sukuk

Published on 10 October 2012

RAM Ratings has reaffirmed the long-term rating of AA3 for Mukah Power Generation Sdn Bhd’s (“Mukah Power” or “the Company”) Senior Sukuk Mudharabah Programme of up to RM665 million (2006/2021) (“Senior Sukuk”), with a stable outlook. Mukah Power is an independent power producer incorporated to construct, own, operate and maintain a 270-MW coal-fired power plant (“the Plant”) in Mukah, Sarawak, under a 25-year Power Purchase Agreement (“PPA”) with Syarikat SESCO Berhad.

The rating remains supported by Mukah Power’s minimal demand risk given its PPA terms; the Company is entitled to earn full capacity payments (“CPs”) from SESCO regardless of the quantum of electricity generated, subject to meeting certain performance requirements. The Plant also qualifies for energy payments on actual electricity sold to SESCO, with a minimum take-or-pay obligation of 1,400 million kWh per year (with an estimated net capacity factor of 66%).

Meanwhile, the Plant is vulnerable to operational glitches, as experienced last year; the resultant outages had translated into RM4.26 million (or 3.84% of potential full CPs) of shortfall in CPs. Consequently, the Plant had suffered poorer efficiency levels following increased fuel consumption. Mukah Power had also incurred unexpected expenditure to sustain the Plant’s operations, specifically on consumables for routine maintenance, capital expenditure and maintenance costs. Looking ahead, the management has revised upwards the forecasts on these expenses.  

Nonetheless, RAM Ratings’ sensitivity analysis shows that Mukah Power’s debt-servicing ability on the Senior Sukuk remains strong, as reflected by the Company’s projected annual pre-financing cashflow of RM85 million-RM110 million. This translates into respective minimum and average Senior Sukuk Service Coverage Ratios of 1.41 times and 1.52 times (with cash balances, post-distribution and calculated over a 12-month period on semi-annual principal repayment dates).

Given the “loss-absorption” features of the Company’s unrated Junior Sukuk Mudharabah Programme of up to RM285 million (2006/2031) (“Junior Sukuk”), any decline in Mukah Power’s pre-financing cashflow will be cushioned by corresponding reductions in subordinated profit payments on the Junior Sukuk; this is allowed under the transaction structure. Our sensitised cashflow assumes that dividends and profit payments on the Junior Sukuk will be made while adhering to its financial covenants throughout the Senior Sukuk’s tenure (i.e. on a forward-looking basis, as opposed to only the year of assessment). That said, the management has represented that it will not pay dividends so long as the Senior Sukuk remains outstanding.

Media contact
Chin Wynn
(603) 7628 1170
chinwynn@ram.com.my