Published on 12 Dec 2022.
RAM Ratings has reaffirmed the AAA/Stable rating of Bakun Hydro Power Generation Sdn Bhd’s (Bakun Hydro or the Company) RM5.54 bil Sukuk Murabahah (the Sukuk) (2016/2031).
The rating is premised on Bakun Hydro’s present and expected superior cashflow coverage over the Sukuk’s tenure, backed by liquidity support from the Government of Malaysia through an irrevocable and unconditional strongly worded letter of undertaking (LoU). Under the LoU, the government is obliged to top up any cash shortfall to ensure the Company’s annual finance service coverage ratio (FSCR) is maintained at 2.0 times throughout the Sukuk’s life.
In FY Dec 2021, Bakun Hydro’s revenue inched up 2.1% to RM1.41 bil (FY Dec 2020: RM1.38 bil) due to an annual increment of the base tariff and shorter outages. However, operating profit before depreciation, interest and tax slipped 2.0% to RM931.62 mil (FY Dec 2021: RM950.79 mil) mainly due to higher water tariff paid in relation to its secondary TOPV revenue. Higher support service charge by Sarawak Energy Berhad (SEB) Group as more staffs are hired for the maintenance engineering work also lifted the costs. As at the last sukuk repayment date of 11 August 2022, the Company’s FSCR of 3.04 times exceeded our projection of 2.57 times, underpinned by higher than expected energy sales, Syarikat SESCO Berhad’s (SESCO) repayment of ageing bills, and the deferral of some capital expenditure.
Under RAM’s sensitised case, the Company may need a single top-up of about RM310 mil from the government in 2029 to keep its FSCR at a minimum of 2.0 times, in view of the lumpy repayment on its unrated RM1.0 bil Government-Guaranteed Sukuk in 2028. The top-up however is only reflected in the sensitised scenario, which assumes lower revenue. Bakun Hydro may consider refinancing the RM1.0 bil sukuk closer to the bullet repayment date, in the event of which a top-up will not be required.
Bakun Hydro’s O&M agreement with its subsidiary, Sarawakhidro Power Sdn Bhd (SPower), will expire on 31 December 2022. The Company will not be renewing the agreement upon expiry and SPower will be dissolved thereafter. Given that all O&M works will be carried out directly by Bakun Hydro going forward, with no changes to existing O&M personnel (transferred from SPower), policies and practices, we are of the view that this internal exercise will have no credit implications.
Bakun Hydro owns and operates the 2,400 MW Bakun hydroelectric plant in Sarawak, under a power purchase agreement with SESCO that runs up to 31 March 2043. The Bakun dam, which the Company owns, is Malaysia’s largest producer of hydro-powered electricity and key to the development of the Sarawak Corridor of Renewable Energy. The plant was fully commissioned in July 2014.
Wong Ee Loo
(603) 3385 2521
Chong Van Nee, CFA
(603) 3385 2482
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Published by RAM Rating Services Berhad
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Ratings on Bakun Hydro Power Generation Sdn Bhd