Published on 30 Nov 2018.
RAM Ratings has reaffirmed the AAA/Stable rating of Sarawak Hidro Sdn Bhd's (Sarawak Hidro or the Company) RM5.54 billion Sukuk Murabahah (2016/2031). The rating reflects the Company's superior finance service coverage ratio (FSCR, with cash balances, post-distribution, calculated on payment dates) of 2 times throughout the Sukuk's tenure – a level commensurate with an AAA rating under RAM's project-finance rating framework. This is supported by the Government of Malaysia's (GoM) continued commitment to top up any shortfall in cashflow in relation to the targeted FSCR of 2 times throughout the life of the Sukuk.
The irrevocable and unconditional liquidity support from the GoM is articulated through a strongly worded letter of undertaking (LoU) from the Minister of Finance (Incorporated) (MoF). The LoU remains in force despite changes in the Company's shareholding; Sarawak Energy Berhad (SEB, rated AA1/Positive), via its 100%-owned subsidiary, SEB Power Sdn Bhd (SEB Power), fully acquired Sarawak Hidro from the MoF on 16 August 2017.
Following the acquisition of Sarawak Hidro by SEB, the Company's debt-servicing ability has improved substantially, thanks to stronger dispatch demand and full payments received in accordance with the take-or-pay arrangement under its power purchase agreement with Syarikat SESCO Berhad (SESCO) – a wholly owned subsidiary of SEB and the sole off-taker of the Company's electricity output. Sarawak Hidro's FSCR stood at a robust 5.28 times as at the last repayment date in August 2018 – higher than our projected 3.95 times. Additionally, the Company is anticipated to enjoy substantial long-term operational cost savings through synergies with SEB's other hydro power plants. Sarawak Hidro is also bound by other strict covenants, which tighten the transaction structure and provide further certainty throughout the tenure of the Sukuk.
Sarawak Hidro is an independent power producer that owns and operates the 2,400MW Bakun hydroelectric plant, under the PPA that runs up to 31 March 2043. The first unit of the Plant was commissioned in August 2011, with full commercial operation achieved in July 2014. The Bakun dam, which the Company owns, is Malaysia's largest hydro-powered electricity producer and key to the development of the Sarawak Corridor of Renewable Energy. As with other IPPs, Sarawak Hidro is exposed to regulatory and single-project risks.
Analytical contact
Ong Ju Laine
(603) 7628 1183
julaine@ram.com.my
Media contact
Padthma Subbiah
(603) 7628 1162
padthma@ram.com.my
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