RAM Ratings reaffirms AA1 rating of Sepangar Bay Power's sukuk

Published on 10 August 2015

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 continues to reflect Sepangar’s robust cashflow-generating ability to service debt obligations, backed by the favourable terms of its Power Purchase Agreement (PPA) with its sole off-taker, Sabah Electricity Sdn Bhd (SESB).
Subsequent to a technical glitch that had rendered its steam turbine non-operational from January 2014 to June 2014, Sepangar has regained its strong operational performance by consistently operating within allowable heat rates and surpassing the minimum operating requirements of the PPA. Excluding the one-time hiccup – the financial losses from which were minimal – Sepangar is expected to continue to exhibit a solid cashflow-generating ability, with an average annual pre-financing cashflow of about RM52 million, based on our sensitised cashflow projections throughout the tenure of the Sukuk. This translates into a robust debt-servicing capability, with a finance service coverage ratio (FSCR) of at least 1.80 times (with cash balances, post-distribution and calculated on principal repayment dates), which is in line with the AA1 rating.
Furthermore, distributions by the Company are restricted by stringent distribution covenants under the Sukuk throughout the tenure of the facility, including a dividend-payment covenant of 1.80 times (with cash balances, post-distribution and calculated on principal repayment dates) and no adverse rating impact following such payments. In assessing Sepangar’s debt-protection metrics in relation to annual distributions to shareholders, we have assumed that the Company 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 (IPPs), the Company remains exposed to regulatory and single-project risks.
Sepangar has been granted the right to construct, own and operate a 100-MW combined-cycle gas turbine power plant in Kota Kinabalu Industrial Park, Sabah, under a PPA with SESB which expires on 11 August 2029.

Media contact
Nurhayati Sulaiman
(603) 7628 1040
yati@ram.com.my