RAM Ratings upgrades Mukah Power’s sukuk rating to AA1(s)

Published on 27 Nov 2019.

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RAM Ratings has upgraded the enhanced long-term rating of Mukah Power Generation Sdn Bhd’s (MPG or the Company) RM665 mil Senior Sukuk Mudharabah Programme (2006/2021) to AA1(s), from AA2(s). Concurrently, the outlook on the rating has been revised from positive to stable. This follows the recent (in October 2019) upgrade of Sarawak Energy Berhad’s (SEB or the Group) rating, from AA1/Positive to AAA/Stable. The enhanced rating continues to reflect SEB’s strong support for MPG, which the Group owns via its 100%-held subsidiary, SEB Power Sdn Bhd. 

MPG is a power producer incorporated to construct, own, operate and maintain a 270 MW coal-fired power plant in Mukah, Sarawak, under a 25-year Power Purchase Agreement (PPA) with Syarikat SESCO Berhad (SESCO) - a wholly owned subsidiary of SEB and MPG’s sole off-taker. The PPA will expire on 15 January 2034.

To boost its financial performance, MPG inked a new PPA with SESCO, which took effect on 1 January 2018. SEB and SESCO have demonstrated their support through an equity injection, a Supplementary Agreement to increase tariffs and the exclusion of major overhaul downtime - under scheduled outages - in the computation of the equivalent availability factor and capacity payments (CPs) of MPG’s plant (the Plant) for a specific span in 2016. These forms of support are further backed by a Letter of Support (LoS) from SESCO dated 21 August 2013, under which SESCO undertakes to ensure that MPG meets its financial obligations throughout the tenure of the Senior Sukuk. 

Under the new PPA terms, MPG’s exposure to demand risk remains minimal. The Company is entitled to full CPs, subject to meeting certain performance requirements. MPG is also entitled to Energy Payments for electricity sold and is expected to be able to fully pass through its fuel cost - so long as the Plant operates within the allowable heat rates under its PPA.

Despite MPG’s volatile performance as well as its fluctuating capital and operating expenses in the last few years – due to the absence of an operation and maintenance agreement – its top line and OPBDIT margin improved a respective 11.7% and 33.7% y-o-y in FY Dec 2018, following an upward tariff revision under its new PPA. A similar trend is observable for 1H FY Dec 2019. Under RAM’s conservative assumptions, which include dividend payouts, the Company is expected to register a healthy average Senior Sukuk Coverage Ratio (SSCR) of 1.40 times (with cash balances, post-distribution, calculated over a 12-month period) over the remaining Sukuk tenure.


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

Media contact
Padthma Subbiah
(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

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