RAM Ratings has reaffirmed the AA2(s)/Stable rating of Sarawak Power Generation Sdn Bhd’s (SPG or the Company) RM215 million Serial Sukuk Musharakah (2006/2021) (Sukuk).

Published on 23 September 2014

RAM Ratings has reaffirmed the AA2(s)/Stable rating of Sarawak Power Generation Sdn Bhd’s (SPG or the Company) RM215 million Serial Sukuk Musharakah (2006/2021) (Sukuk). The enhanced rating reflects the Sarawak Energy group’s (the Group) continuous support for SPG via a strongly-worded letter of support from Syarikat SESCO Berhad (SESCO), a wholly-owned subsidiary of the Group. The rating is supported by SPG’s strong business profile, underscored by the favourable terms of its 25-year power purchase agreement (PPA) with SESCO, which expires in February 2024.
SPG is an independent power producer (IPP) that built, owns and operates a 317-MW (net dependable capacity) combined-cycle gas turbine facility in Tanjung Kidurong, Bintulu, Sarawak. Our assessment of SPG takes into account the issues encountered, i.e. derated dependable capacities for Units 7 and 8 as well as the longer-than-expected outages in Unit 7 as a result of an extended major inspection during the period under review. Consequently, capacity payment losses from Units 7 and 8 and lesser energy payments from Unit 9 led to SPG registering weaker-than-expected financials in fiscal 2013. The Company also made net losses of RM7.70 million, mainly due to higher capital costs for its partial redemption of the Sukuk as well as a write-down of RM6.96 million of Certified Emission Reduction income recognised in 2012.
Nevertheless, SPG’s debt-servicing ability remains healthy, with a sukuk service coverage ratio (SSCR) of 2.09 times (with cash balances, post-distribution) as at the last principal repayment date of 26 December 2013, underscored by cash balances of RM105.44 million. Going forward, given the redemption of RM95 million of the Sukuk in fiscal 2013, SPG’s SSCR is envisaged to stay healthy. We expect management to exercise prudence in making any distribution, as excessive distributions in the near term, although allowed, may weaken the Company’s future debt-protection metrics.
As with other IPPs, SPG is exposed to single project risk. The absence of a formal operation and maintenance agreement between SPG and SESCO may give rise to disputes in the event of a breakdown. The arrangement outlined in the PPA only covers broad issues on responsibility and compensation. However, this is viewed as remote given SPG’s close relationship with its parent company.

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Kathleen Por
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kathleen@ram.com.my