RAM Ratings reaffirms Sarawak Energy’s AAA rating

Published on 09 Nov 2021.

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RAM Ratings has reaffirmed the AAA/Stable rating of Sarawak Energy Berhad’s (SEB or the Group) RM15.0 bil Sukuk Musyarakah Programme (2011/2036). 

The reaffirmation reflects our expectation that the Group’s credit metrics will remain resilient, supported by its solid business fundamentals amid the progressively maturing Sarawak Corridor of Renewable Energy (SCORE). We have also taken into account the strong support SEB enjoys from both the Sarawak state government and the federal government.

SEB’s monopoly over the generation, transmission, distribution and retail of electricity in Sarawak highlights its strategic role in making available and delivering electricity to power the state and its importance as a key facilitator of the SCORE. Based on RAM’s rating methodology for government-linked entities, the Group benefits from a very high likelihood of extraordinary government support in the event of any financial distress. SEB is wholly owned by the Sarawak state government through the State Financial Secretary.

The Group’s financial performance was largely unscathed by the pandemic. As expected, revenue and operating profit before depreciation, interest, and tax (OPBDIT) declined a respective 2.4% and 19.5% to RM5.53 bil and RM2.95 bil in FY Dec 2020, with OPBDIT margin narrowing to 53.3% (FY Dec 2019: 64.7%). This was due to weaker electricity sales and a higher tariff for taking or impounding raw water for generation of electricity, which came into effect 1 January 2020. Pre-tax profit fell 35.3% to RM1.06 bil in FY Dec 2020 but showed a notable turnaround in 1H FY Dec 2021. SEB’s revenue and pre-tax profit grew 8.1% and 9.4% y-o-y to RM2.90 bil and RM0.71 bil, respectively, in 1H fiscal 2021, on track to reaching pre-pandemic levels.

Press Metal Aluminium Holdings Berhad (rated AA3/Stable/P1 by RAM) and its subsidiary PMB Silicon Sdn Bhd collectively accounted for 32.6% of the Group’s revenue for fiscal 2020. Notwithstanding the customer concentration risk, steady electricity sales to Press Metal helped offset the weaker uptake by other SCORE customers that were affected by the health crisis. The Group remains protected by take-or-pay clauses under power purchase agreements signed with bulk customers. Looking ahead, SEB’s performance is anticipated to improve further as new bulk customers gradually commission and ramp up demand. The Group signed three term sheets for a total of 170 MW of new demand between 1H FY Dec 2020 and 1H FY Dec 2021. Soaring commodity prices as economies reopen in various parts of the world augur well for SEB’s SCORE customers which are largely involved in the aluminium, steel and oil-based industries.

With outstanding debt of RM20.18 bil as at end-1H FY Dec 2021, SEB’s leverage is relatively high, as indicated by its gearing of 1.74 times and debt-to-OPBDIT of 6.0 times (annualised). The Group nevertheless remains guided by its Cash Conservation & Management Office strategy implemented in response to the pandemic. Cash generated from stronger operating cashflow this year was mainly used to pare down debt as some non-essential capital expenditure was deferred. This improved SEB’s funds from operations debt coverage to a healthy 0.17 times in 1H FY Dec 2021 (FY Dec 2020: 0.15 times). The Group’s capitalisation and debt coverage metrics are likely to hover around current levels going forward, backed by the gradual increase in demand from SCORE customers.

Demand and customer concentration risks continue to moderate the rating. SEB’s business is structurally skewed towards the SCORE’s contribution. SEB is also exposed to supply concentration risk as the Group’s Bakun hydroelectric plant supplies more than one-third of Sarawak’s installed capacity. The risk will however be mitigated by SEB’s upcoming plant-ups which will add over 1,700 MW of new capacity through the next decade.


Analytical contacts
Liew Kar Ling
(603) 3385 2586

Chong Van Nee, CFA 
(603) 3385 2482


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.

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