FW: RAM Ratings places Mukah Power’s rating on positive outlook

 

Published on 26 Oct 2018.

RAM Ratings has revised the outlook on the AA2(s) rating of Mukah Power Generation Sdn Bhd's (MPG or the Company) RM665 million Senior Sukuk Mudharabah Programme (2006/2021), to positive from stable. This follows the recent (in August 2018) revision of Sarawak Energy Berhad Group's (SEB or the Group) rating outlook, also to positive from stable. The enhanced rating continues to reflect SEB's strong support for MPG, which the former owns via its 100%-held subsidiary, SEB Power Sdn Bhd.

In December 2017, a new Power Purchase Agreement (PPA) was inked between MPG and Syarikat SESCO Berhad (SESCO), a wholly owned subsidiary of SEB and MPG's sole off-taker, and was implemented from 1 January 2018. Support from SEB and SESCO have also taken the form of equity injection, a revision in tariffs for a specific period via a Supplementary Agreement signed in 2014 and the exclusion of major overhaul downtime in scheduled outages when computing MPG's Plant's (the Plant) equivalent availability factor for a specific span in 2016. Such assistance is also evident from a Letter of Support (LoS) – dated 21 August 2013 - extended to MPG by SESCO, 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's exposure to demand risk remains minimal under the terms of its new PPA with SESCO. The Company is entitled to full Capacity Payments, subject to meeting certain performance requirements. It is also entitled to Energy Payments for electricity sold. Under the new PPA, the Company is expected to be able to fully pass through its fuel costs as long as the Plant operates within allowable heat rates, as per the PPA.

Since its inception, MPG's operating expenses have been exposed to cost fluctuations due to the absence of an operation and maintenance (O&M) agreement to allow for risk transfer to a third party. Based on our sensitivities, we expect MPG to register a minimum Senior Sukuk Coverage Ratio of 1.30 times throughout the tenure of the Sukuk as the Company projects hefty capex and O&M expenditure for the Plant between 2018 and 2021. Given the LoS and financial support from SESCO, we expect SEB to step in to meet any potential cash shortfall that the Company may face. As represented by the Company, we assume that there will be no distributions or subordinated payments to SEB. In the meantime, MPG 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 will expire 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