Published on 24 Dec 2020.
RAM Ratings has reaffirmed the enhanced AA1(s)/Stable rating of Mukah Power Generation Sdn Bhd’s (MPG or the Company) RM665 mil Senior Sukuk Mudharabah Programme (2006/2021). The rating reflects Sarawak Energy Berhad Group’s (SEB or the Group) 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 (comprising two generating units) in Mukah, Sarawak (the Plant).
SEB’s support for MPG has been clearly observable through the years. For instance, the Company inked a new PPA with Syarikat SESCO Berhad (SESCO, a wholly owned subsidiary of SEB and MPG’s sole off-taker), which took effect on 1 January 2018 and has since boosted its financial performance. MPG’s rating is also linked to that of SEB by a Letter of Support (LoS) from SESCO dated 21 August 2013. Pursuant to the LoS, SESCO undertakes to ensure that MPG meets its financial obligations under the Senior Sukuk throughout the tenure of the facility. Based on these factors, we expect SEB to step in to meet any potential cash shortfall that MPG may encounter.
The Plant’s performance, as measured by its 12-month rolling average equivalent availability factor (AEAF), improved slightly in FY Dec 2019, when its AEAF rose 1 percentage point to 80%. However, it decreased to 67% in 1H FY Dec 2020, mostly due to delays in flying in specialists from China to repair Unit 1, which coincides with the Covid-19 pandemic. This had substantially reduced its capacity payments, by RM10.5 mil or 12.9% of full CPs. The Company expects Unit 1 to only be fully repaired by end-2020, with experts from China already working on site.
In fiscal 2019, the plant experienced higher depreciation due to the capitalisation of insurance spares in the prior year, and when coupled with the increase in plant’s maintenance cost from minor overhaul resulted in a 34% drop in pre-tax profit although revenue was relatively flat. The prolonged outage of Unit 1 pushed revenue down 24% y-o-y in 1H FY Dec 2020. That said, cost management helped cushion the impact at pre-tax level, with only an 8% decline. Although MPG’s pre-financing cashflow remained healthy in fiscal 2019, it ebbed to RM34 mil in 1H FY Dec 2020 (1H FY Dec 2019: RM50 mil), mainly due to the timing of receivables and lower operating profit.
Under RAM’s conservative assumptions, which include dividend payouts and the permanent shutdown of Unit 1, MPG is expected to register a healthy average Senior Sukuk coverage ratio of 1.51 times (with cash balances, post-distribution, calculated over a 12-month period) throughout the remaining tenure of the facility.
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Ratings on Mukah Power Generation Sdn Bhd