[RAM] RAM Ratings affirms AAA(s)/Stable rating of Sarawak Petchem's Sukuk Wakalah

RAM Ratings has affirmed the AAA(s)/Stable rating of Sarawak Petchem Sdn Bhd’s (Sarawak Petchem or the Company) RM6.0 bil Islamic Medium-Term Notes Programme (2022/2052) (Sukuk Wakalah). The Company is involved in the business of methanol production, with its mega methanol complex (the Project or Plant) being constructed in Tanjung Kidurong, Bintulu, Sarawak. 

The Sukuk Wakalah’s enhanced rating reflects the irrevocable and unconditional joint and several guarantee provided by the Company’s shareholders, Permodalan Satok Berhad and Sarawak Economic Development Corporation (SEDC). The Company enjoys a very close relationship with SEDC. As the stronger of the two guarantors, SEDC’s credit profile (which mirrors Sarawak state’s AAA state implicit strength) anchors the Company’s rating. We view SEDC will continue to remain an important statutory body in Sarawak to promote the state’s economic, industrial and social developments. This is notwithstanding the state’s recently stated intention for SEDC to become financially independent by 2027.  

On a standalone basis, Sarawak Petchem’s credit profile is supported by its strong project fundamentals, backed by favourable contractual arrangements. The Plant’s main input – natural gas – is supplied by Petroleum Sarawak Berhad (PETROS), Sarawak’s sole gas aggregator which took over distribution from Petroliam Nasional Berhad (Petronas). Under the existing Gas Sales Agreement between the parties, the cost of natural gas is tied to methanol prices, net of freight charges. This offers the Company some natural hedge against the volatile prices of methanol, a globally traded commodity. Meanwhile, Petronas still provides technical support and expertise, besides also acting as the offtaker of the Company’s methanol products.

Project completion risks and cost overrun concerns are largely allayed by the advanced overall project progress, which as at end-May 2024 stood at 98.58%, marginally behind the scheduled 99.56%. The commissioning process commenced in 1Q 2024, and the Plant is expected to begin its first full month of operations in August 2024. 

As a single capital-intensive project, Sarawak Petchem’s balance sheet is highly leveraged. Gearing peaked at 3.47 times at end-December 2023 but post-operation, we expect the ratio to ease to 2.40 times by end-2024 before gradually declining to circa 1.50 times over the next five years. Operating cashflow debt coverage is projected to be below 0.20 times in FY Dec 2025 (first full year of operation) before improving to a healthy 0.20 times - 0.30 times over the next five years with the commencement of debt repayments. Meanwhile, the Company’s debt servicing capacity is projected to be strong, with a finance service cover ratio (post-distribution, with cash) of 1.75 times in FY Dec 2025, the first full year of operation.
 

Analytical contacts
Hani Hamizah Nor Hashim 
(603) 3385 2575
hani@ram.com.my

Thong Mun Wai
(603) 3385 2522
munwai@ram.com.my

Media contact
Sakinah Arifin
(603) 3385 2500
sakinah@ram.com.my