RAM Ratings downgrades rating of SESCO's Islamic debt securities

RAM Ratings (24 May 2011): RAM Ratings has downgraded the rating of Syarikat SESCO Berhad’s (SESCO) RM605 million Al-Bai Bithaman Ajil Islamic Debt Securities (2001/2012), from AAA to AA1; the long-term rating has a stable outlook. SESCO is the exclusive provider of electricity and sole off-taker of all the generating capacity in Sarawak.

The rating downgrade reflects the weaker financial profile of SESCO arising from the heavier capacity-payment obligations anticipated via power purchase agreements for the new and sizeable power plants under the Sarawak Corridor of Renewable Energy (or SCORE). The sizeable new power-generating capacity will also increase demand risk for SESCO and its holding company, Sarawak Energy Berhad (SEB). As an investment-holding company, SEB relies on residual cashflow from its subsidiaries, particularly SESCO (its utility arm), to support its heftier debt load. On this account, the credit profiles of the 2 entities are viewed to be closely linked. For further details on SEB, please refer to our press release on 24 May 2011, entitled RAM Ratings assigns preliminary AA1 rating to Sarawak Energy’s proposed RM15 billion sukuk.

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