RAM Ratings upgrades Sarawak Power Generation’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 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.  


Analytical contact
Irfan Afifah Mohd Zaki
(603) 3385 2551

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.

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