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RAM Ratings reaffirms Sepangar’s AA1/Stable sukuk rating

Published on 11 Jun 2021.

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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 mil Nominal Value Sukuk Murabahah (the Sukuk). Sepangar owns and operates a 100 MW 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. Despite a challenging year amid the COVID-19 pandemic and the various stages of the Movement Control Order, Sepangar had been largely unaffected as it had been allowed to keep operating given its provision of essential services. 

The Plant’s operating performance deteriorated slightly last year due to a glitch in the steam turbine generator and more frequent half-block shutdowns amid slower demand. Nonetheless, its performance was commendable, with a robust average 12-month rolling equivalent availability factor of 91.66% in 2020 – well above the PPA requirement of 87%. This had enabled Sepangar to continue earning full monthly capacity payments. The Company has also been able to consistently fully pass through its fuel costs to SESB; Sepangar met its PPA requirements in 1Q 2021.

As at the last principal repayment date of the Sukuk, Sepangar’s finance service coverage ratio (FSCR) stood at 2.62 times (with cash balances, post-distribution) – higher than the projected 2.36 times – backed by its stronger-than-expected cashflow. Based on our sensitised case, Sepangar is envisaged to preserve its healthy debt coverage with an average annual pre-financing cashflow of about RM44.31 mil throughout the tenure of the Sukuk. This translates into strong minimum and average FSCRs of a respective 1.80 and 2.09 times (with cash balances, post-distribution and calculated on sukuk principal and profit payment dates).    

Notably, Sepangar’s dividend distributions are subject to stringent covenants, including an FSCR (with cash balances, post-distribution and calculated on sukuk principal and profit payment dates) of at least 1.80 times before any distributions. It must also comply with annual distribution caps while such payouts cannot have any adverse credit impact on the Company. 

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 is exposed to regulatory and single-project risks.

 

Analytical contact
Irfan Afifah Mohd Zaki
(603) 3385 2551
irfan@ram.com.my

Media contact
Padthma Subbiah
(603) 3385 2577
padthma@ram.com.my

 

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 2021 by RAM Rating Services Berhad



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