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

 

Published on 25 Oct 2017.

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) (the Sukuk). The enhanced rating reflects support for the Company 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 SPG’s sole offtaker, had provided various forms of assistance to the Company in the past. Support was evident most recently in 2015 when SESCO allowed SPG to reset the rolling Equivalent Availability Factor (EAF) of Unit 8 of its plant (the Plant) to enable the Company to minimise reductions in capacity revenue under the terms of its Power Purchase Agreement (PPA). Such assistance is further backed by a Letter of Support (LoS) extended by SESCO to SPG, dated 24 September 2007, in which the former undertakes to ensure that the Company fully and promptly meets all its financial obligations in respect of the Sukuk throughout the tenure of the facility. 

SPG earns full Capacity Payments as long as both units of the Plant maintain a dependable capacity of 105MW and a minimum EAF of 85%, regardless of the amount of electricity sold. However, Unit 9 earns Energy Payments on a take-and-pay basis. 

While the Plant’s performance had improved in 2016, Units 8 and 9 continued to face operational challenges in 1H FY Dec 2017. Nevertheless, our sensitised cashflow projections indicate that SPG’s minimum Sukuk Service Coverage Ratio (with cash balances, post-distribution, calculated over a 12-month period on semi-annual principal repayment dates) (SSCR) will remain robust at around 1.50 times between December 2017 and June 2021. While a hefty capex for the refurbishment of Unit 8 is expected to be incurred in 2021, the Company has represented that it will prioritise its sukuk obligations over capex payments, repayments of advances to SEB and dividend distributions. 

Typical of independent power producers, SPG is exposed to single-project risk. Additionally, the operations and maintenance (O&M) arrangement outlined in the PPA covers only broad issues of responsibility and compensation. Nevertheless, the absence of a formal O&M agreement between SPG and SESCO is unlikely to give rise to any dispute, given the Group’s strong commitment, as evidenced in the past. 

SPG holds the licence to build, own and operate a 320 MW combined-cycle gas turbine facility in Tanjung Kidurong, Bintulu, Sarawak.  

 

Analytical contact
Chinthamani Thanneermalai
(603) 7628 1183
chinthamani@ram.com.my

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