[RAM] RAM Ratings reaffirms AA1(s)/Stable rating of Sarawak Power Generation's sukuk

RAM Ratings has reaffirmed the AA1(s)/Stable rating of Sarawak Power Generation Sdn Bhd’s (SPG or the Company) RM215 mil Serial Sukuk Musharakah (2006/2021) (the Sukuk). The enhanced rating reflects support for SPG from the Sarawak Energy Berhad Group (SEB or the Group), which owns the Company via 100%-held SEB Power Sdn Bhd. SPG holds the licence to build, own and operate a 317 MW combined-cycle, gas-turbine facility (the Plant) in Tanjung Kidurong, Bintulu, Sarawak.

SEB has provided various forms of assistance to SPG through the last decade. Such assistance is further backed by a Letter of Support from Syarikat SESCO Berhad (SESCO) – a wholly owned subsidiary of SEB and SPG’s sole off-taker. Pursuant to this letter, SESCO undertakes to ensure that SPG fully and promptly meets all its financial obligations in respect of the Sukuk throughout its tenure.

Under the terms of its Power Purchase Agreement (PPA) with SESCO, SPG earns full capacity payments (CPs) as long as Units 7 and 8 of the Plant maintain a dependable capacity of 105 MW and a minimum rolling monthly Equivalent Availability Factor (EAF) of 85%, regardless of the amount of electricity sold. SPG has been allowed to operate throughout the various stages of the movement control order (MCO) because power plant operations are classified as essential services. However, Unit 8 incurred CP losses in March-June 2020, attributable to the MCO that had extended the duration of a major inspection, in order to follow certain standard operating procedures. That said, the Plant’s overall performance through the last 12 months is deemed satisfactory.

The Sukuk will mature in December 2021. As at end-June 2020, SPG’s RM33.80 mil cash pile amply covered its entire RM16.62 mil of outstanding sukuk obligations. In any case, our sensitised cashflow projections indicate that SPG’s minimum sukuk service coverage ratio (SSCR, with cash balances, post-distribution, calculated over a 12-month period on semi-annual principal repayment dates) will remain robust at around 1.50 times between December 2020 and December 2021. The Company has stated that it will prioritise its sukuk obligations over capital expenditure, repayments of advances to SEB and dividend distributions. 


Analytical contact
Irfan Afifah Mohd Zaki                
(603) 3385 2551                    
irfan@ram.com.my

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Padthma Subbiah
(603) 3385 2577
padthma@ram.com.my