RAM Ratings reaffirms Sepangar’s AA1/Stable sukuk rating

Published on 21 Aug 2019.

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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.


Analytical contact
Chong Van Nee, CFA
(603) 3385 2482

Media contact
Padthma Subbiah
(603) 7628 1162


The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.

RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.

Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.

Published by RAM Rating Services Berhad
© Copyright 2019 by RAM Rating Services Berhad

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