Published on 27 Nov 2019.
RAM Ratings has upgraded the enhanced long-term rating of Sarawak Power Generation Sdn Bhd’s (SPG or the Company) Serial Sukuk Musharakah of up to RM215 million (the Sukuk) to AA1(s), from AA2(s). Concurrently, the outlook on the rating has been revised from positive to stable. This follows the recent upgrading of Sarawak Energy Berhad’s (SEB or the Group) rating, from AA1/Positive to AAA/stable. The enhanced sukuk rating reflects SEB’s strong support for SPG, which the Group owns via its 100%-held subsidiary, SEB Power Sdn Bhd.
SPG holds a licence to build, own and operate a 317 MW combined-cycle gas-turbine facility (the Plant) in Tanjung Kidurong, Bintulu, Sarawak. Syarikat SESCO Berhad, a wholly owned subsidiary of SEB and SPG’s sole off-taker, has been extending various forms of assistance to the Company. The most recent was in 2015, when SESCO allowed SPG to reset the rolling Equivalent Availability Factor (EAF) of Unit 8 of the Plant - to enable it to minimise reductions in capacity revenue under the terms of its Power Purchase Agreement (PPA). This was backed by a Letter of Support from SESCO, dated 24 September 2007, under which it undertakes to ensure that SPG fully and promptly meets all its financial obligations in respect of the Sukuk throughout the tenure of the facility.
SPG earns full Capacity Payments (CPs) as long as Units 7 and 8 of the Plant maintain a dependable capacity of 105 MW and a minimum EAF of 85%, regardless of the amount of electricity sold. However, Unit 9 earns Energy Payments on a take-and-pay basis.
The Plant’s overall performance improved markedly in 2018, with no major issue. The downtime hours for all three units were minimal, mostly attributable to maintenance requirements. Notably, the debt-servicing ability of SPG remained robust, as indicated by its projected annual Sukuk Service Coverage Ratio (SSCR) of at least 1.50 times (with cash balances, post-distribution, calculated over a 12-month period on semi-annual principal repayment dates) throughout the remaining tenure of the Sukuk. The Company has highlighted that it will prioritise its sukuk obligations over its capex, the repayment of advances to SEB and dividend distributions.
Typical of independent power producers, SPG is exposed to single-project risk. Additionally, the operations and maintenance (O&M) arrangement outlined in the PPA only covers broad issues of responsibility and compensation. That said, the absence of a formal O&M agreement between SPG and SESCO is unlikely to give rise to any dispute given the Group’s strong commitment, as proven to date.
Irfan Afifah Mohd Zaki
(603) 3385 2551
(603) 3385 2577
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Ratings on Sarawak Power Generation Sdn Bhd