RAM Ratings reaffirms Sepangar’s AA1/Stable sukuk rating

Published on 25 Jun 2020.

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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). Sepangar owns and operates a 100MW combined cycle gas turbine power plant in Kota Kinabalu, Sabah (the Plant). On 28 January 2005, the company signed a 21-year Power Purchase Agreement (PPA) with Sabah Electricity Sdn Bhd (SESB), spanning from 21 August 2008 to 11 August 2029.

The rating reflects Sepangar’s robust cashflow to service its debt obligations, backed by the favourable terms of its PPA with its sole off-taker, SESB. The Plant has been performing commendably since 2015, recording an average 12-month rolling equivalent availability factor of 95.76% in fiscal 2019 – well above the PPA requirement of 87% and entitling Sepangar to full monthly and bonus capacity payments. The Company also continued to fully pass through its fuel costs to SESB via energy payments, as it had operated within the stipulated heat rates.

In light of the COVID-19 pandemic, Sepangar has been allowed to keep operating despite the Movement Control Order – albeit with more frequent half-block shutdowns amid slower demand. This is because it is deemed a provider of essential services. We note that the Company met its PPA requirements in 4M 2020.

As at the last principal repayment date of the Sukuk (3 January 2020), Sepangar’s finance service coverage ratio (FSCR) came in at 2.70 times (with cash balances, post-distribution) – higher than the projected 2.27 times – thanks to early settlement of SESB’s dues. Our sensitised analysis indicates the preservation of Sepangar’s robust cashflow-generating capability, with an average annual pre-financing cashflow of about RM44.15 million throughout the tenure of the Sukuk. This translates into strong minimum and average FSCRs (with cash balances, post-distribution and calculated on sukuk principal and profit payment dates) of a respective 1.80 and 2.07 times.   

Sepangar’s distributions are subject to stringent covenants, including having to register an FSCR (with cash balances, post-distribution and calculated on sukuk principal and profit payment dates) of at least 1.80 times to be able to pay dividends. It also has to comply with annual distribution caps while such distributions must not have any adverse rating impact. 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
Seri Nuralya Munawir
(603) 3385 2484

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 2020 by RAM Rating Services Berhad

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