Published on 21 Aug 2019.
RAM Ratings has reaffirmed the AA1/Stable rating of Sepangar Bay Power Corporation Sdn Bhd’s (Sepangar or the Company) RM575 million Nominal Value Sukuk Murabahah (the Sukuk).
The rating reflects Sepangar’s robust cash flow vis-vis servicing its debt obligations, backed by the favourable terms of its Power Purchase Agreement (PPA) with its sole off-taker, Sabah Electricity Sdn Bhd (SESB). Sepangar’s plant, which has delivered a stellar performance since 2015, boasts an average 12-month rolling Equivalent Availability Factor of 94.04% – substantially above the required 87% – which has enabled the Company to claim full monthly Capacity Payments. Furthermore, the Company has consistently been able to fully pass through fuel costs to SESB.
As at the last principal repayment date of the Sukuk (3 July 2019), Sepangar’s finance service coverage ratio (FSCR, with cash balances, post-distribution) came in at 2.41 times – higher than the projected 1.83 times – thanks to a stronger than expected operating performance. Based on our sensitised case, Sepangar is envisaged to preserve its strong cashflow generating ability, with an average annual pre-financing cash flow of about RM47.5 million throughout the tenure of the Sukuk. This translates into solid debt coverage, thereby allowing the Company to maintain minimum and average FSCRs (with cash balances, post-distribution and calculated on sukuk principal and profit repayment dates) of 1.83 times and 2.09 times, respectively, throughout the Sukuk’s tenure.
Sepangar’s distributions are subject to stringent covenants, including having to register a FSCR (with cash balances, post-distribution and calculated on sukuk principal and profit repayment dates) of at least 1.80 times to be able to make dividend payments; annual distribution caps; and the requirement that such payments should have no adverse rating impact on the Company. We have assumed that Sepangar will adhere to its financial covenants throughout the tenure of the Sukuk (as opposed to only in the year of assessment). As with other independent power producers, the Company remains exposed to regulatory and single-project risks.
Chong Van Nee, CFA
(603) 3385 2482
(603) 7628 1162
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Ratings on Sepangar Bay Power Corporation Sdn Bhd