Published on 25 Jun 2020.
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.
Seri Nuralya Munawir
(603) 3385 2484
(603) 3385 2577
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Ratings on Sepangar Bay Power Corporation Sdn Bhd