Published on 22 July 2016
RAM Ratings has reaffirmed the AA1/Stable rating of Sepangar Bay Power Corporation Sdn Bhd’s (Sepangar or the Company) RM575 million nominal value Sukuk Murabahah (the Sukuk). The rating reflects Sepangar’s robust cashflow-generation to service debt obligations, backed by the favourable terms of the Company’s Power Purchase Agreement (PPA) with its sole offtaker, Sabah Electricity Sdn Bhd (SESB).
Save for a one-time damage to its steam turbine in January 2014, the Company has ensured the Plant resumed its optimal performance, demonstrated by its ability to maintain its 12-month rolling Equivalent Availability Factor above the PPA’s requirement. This has enabled the Company to claim full Capacity Payments since February 2015. Furthermore, Sepangar had managed to fully pass through fuel costs to SESB by operating within the heat rates stipulated in the PPA.
As such, based on our projections, Sepangar is envisaged to preserve its strong cashflow-generating ability, with an average annual pre-financing cashflow of about RM57 million throughout the tenure of the Sukuk. This translates into solid debt coverage, enabling the Company to maintain a finance service coverage ratio of at least 1.80 times (with cash balances, post-distribution and calculated on principal repayment dates) during this period.
Furthermore, Sepangar’s distributions are subject to stringent covenants, including a dividend-payment covenant of 1.80 times (with cash balances, post-distribution and calculated on principal repayment dates), annual distribution caps and the requirement that such payments should have no adverse rating impact on the Company. On this account, we have assumed that Sepangar will adhere to its financial covenants throughout the tenure of the Sukuk (i.e., on a forward-looking basis, as opposed to only in the year of assessment). As with other independent power producers, the Company remains exposed to regulatory and single-project risks.
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