RAM Ratings reaffirms Sepangar’s AA1/Stable sukuk rating

Published on 24 Jun 2022.

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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). 

The reaffirmation of the rating is premised on Sepangar’s continued ability to generate robust cashflow to service its debt obligations, underpinned by the sterling performance of its 100 MW combined-cycle gas turbine power plant in Kota Kinabalu, Sabah (the Plant). 

Sepangar’s sound operating performance is reflected in its consistent ability to operate within the performance limits prescribed by its power purchase agreement (PPA) with Sabah Electricity Sdn Bhd (SESB). For FY Dec 2021, the Plant recorded an average 12-month rolling equivalent factor of 92.09% (well above the 87% required by the PPA), enabling the Company to continue claiming full capacity payments (CPs), which it has done since 2015. Concurrently, Sepangar managed to fully pass through fuel costs to SESB, its sole offtaker, given that the Plant had operated within the stipulated heat rates. Sepangar also met its PPA requirement for 2M 2022.

In view of better than expected cashflow generation, Sepangar’s finance service coverage ratio (FSCR) stood at 2.53 times (with cash balances, post-distribution) on the last profit repayment date of the Sukuk (3 January 2022), outperforming the projected 2.29 times given the better plant performance taking into account the dividend payment of RM8.3 mil to shareholders in July 2021. Under our stressed scenario, Sepangar is envisaged to generate an average annual pre-financing cashflow of about RM44.11 mil over the remaining tenure of the Sukuk. This translates into strong minimum and average annual FSCRs of a respective 1.80 times and 2.08 times (with cash balances, post-distribution, calculated on sukuk principal and profit payment dates) for the remaining duration of the sukuk facility. The ratios factor in an expected dividend distribution of RM7.3 mil in the upcoming principal repayment month of July 2022.

Sepangar’s distributions are subject to stringent covenants, including ensuring that the FSCR will be at least 1.80 times to be able to make dividend payment and the distribution would have no adverse rating impact. The transaction also has annual distribution caps. When making dividend distributions, we expect Sepangar to be mindful of adherence to its financial covenants throughout the tenure of the Sukuk (as opposed to only in the year of assessment). Like other independent power producers, the Company remains exposed to regulatory and single-project risks.


Analytical contacts
Kaylee Chiah
(603) 3385 2515

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.

Published by RAM Rating Services Berhad
© Copyright 2022 by RAM Rating Services Berhad

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