Published on 22 Nov 2019.
RAM Ratings has reaffirmed the AAA/Stable rating of Bakun Hydro Power Generation Sdn Bhd’s (Bakun Hydro or the Company, formerly known as Sarawak Hidro Sdn Bhd) RM5.54 bil Sukuk Murabahah (2016/2031). The rating reflects the Company’s superior annual finance service coverage ratio (FSCR) of 2 times (with cash balances, post-distribution, calculated on payment dates) throughout the Sukuk’s tenure – a level that is commensurate with an AAA rating under RAM’s project-finance rating framework. The rating is underpinned by the Company’s robust cashflow-generating ability, and strengthened further by the firm commitment of the Government of Malaysia (GoM) to top up any shortfall in cashflow related to the targeted 2 times annual FSCR throughout the life of the Sukuk.
Following its acquisition of Bakun Hydro by Sarawak Energy Berhad (SEB – rated AAA/Stable) from the Minister of Finance (Incorporated) (MoF) in August 2017, the Company’s debt-servicing ability has improved substantially. As at the last repayment date of 9 August 2019, Bakun Hydro’s FSCR stood at a robust 4.12 times – higher than our projected 3.61 times. This was underscored by stronger dispatch demand and substantial operational cost savings through synergies with SEB’s other hydro power plants. Notably, Bakun Hydro’s debt-servicing ability is anticipated to remain resilient under RAM’s stressed scenario of lower revenue and a higher inflation factor. This is reflected by its respective minimum and average annual FSCRs of 2.00 and 4.14 times throughout the Sukuk’s tenure.
The irrevocable and unconditional liquidity support from the GoM is articulated through a strongly worded letter of undertaking (LoU) from the MoF. The LoU remains in force, requiring the GoM to honour its obligations under the liquidity-support arrangement despite changes in Bakun Hydro’s shareholding structure and/or the country’s administration.
Bakun Hydro owns and operates the 2,400 MW Bakun hydroelectric plant, under its Power Purchase Agreement with Syarikat SESCO Berhad that runs up to 31 March 2043. The Bakun dam, which the Company owns, is Malaysia’s largest producer of hydro-powered electricity and key to the development of the Sarawak Corridor of Renewable Energy. The first unit of the Plant was commissioned in August 2011, with full commercial operations achieved in July 2014. As with other independent power producers, Bakun Hydro is exposed to regulatory and single-project risks.
Chu Jia Ying
(603) 3385 2519
(603) 3385 2577
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
Ratings on Sarawak Hidro Sdn Bhd