FW: RAM Ratings reaffirms AA2(s)/Stable rating of Mukah Power Generation's sukuk

 

Published on 25 Oct 2017.

RAM Ratings has reaffirmed the enhanced rating of Mukah Power Generation Sdn Bhd’s (MPG or the Company) RM665 million Senior Sukuk Mudharabah Programme (2006/2021) at AA2(s)/Stable. The enhanced rating reflects support for MPG from the larger Sarawak Energy Berhad Group (SEB or the Group) which owns the Company via its wholly owned subsidiary SEB Power Sdn Bhd. 

Syarikat SESCO Berhad (SESCO), a wholly owned subsidiary of SEB and MPG’s sole offtaker, has provided various forms of assistance to the Company in the past to keep the Company’s financial performance intact. The support provided from SEB and SESCO have been in the form of equity injection, revision in tariffs for a specified period of time via a Supplementary Agreement signed in 2014 and exclusion of major overhaul downtime in scheduled outages in the computation of the Plant’s equivalent availability factor for a specified period of time in 2016. Assistance is also evident in a Letter of Support (LoS) extended to MPG by SESCO, dated 21 August 2013, in which the latter undertakes to ensure that the Company fully and promptly meets all its financial obligations in respect of the Senior Sukuk throughout the tenure of the facility.

MPG exposure to demand risk remains minimal, given the terms of its Power Purchase Agreement with SESCO. The Company is entitled to full Capacity Payments, irrespective of the quantum of electricity generated, subject to meeting certain performance requirements. It is also entitled to Energy Payments for electricity sold, with an annual despatch commitment from SESCO for at least 1,400 GWh (net capacity factor of 66%). 

Since its inception, MPG’s coal consumption rate has gradually risen due to the usage of inferior-quality coal, while its operational expenses continue to be exposed to cost fluctuations owing to the absence of an operations and maintenance agreement to allow for risk transfer to a third party. Based on RAM’s sensitised cashflow projections, the Company’s Senior Sukuk coverage levels are expected to decline to below 1 time from December 2020 onwards, given increasing coal consumption and maintenance costs. Considering the LoS and financial support received, we expect SEB to step in to meet any future cash shortfall that the Company faces. As represented by the Company, we assume that there will be no distributions or subordinated payments to SEB. Elsewhere, the Company remains exposed to single-project risk as it derives its income from a specific project. 

MPG is an independent power producer incorporated to construct, own, operate and maintain a 270-MW coal-fired power plant in Mukah, Sarawak, under a 25-year PPA with SESCO, which expires on 15 January 2034. 

 

Analytical contact
Chinthamani Thanneermalai
(603) 7628 1013
chinthamani@ram.com.my

Media contact
Padthma Subbiah
(603) 7628 1162
padthma@ram.com.my