Published on 15 Aug 2023.
RAM Ratings has affirmed 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 rating is premised on Sepangar’s robust projected cash flows to service debt obligations, underpinned by the sterling performance of its 100 MW combined-cycle gas turbine power plant in Kota Kinabalu, Sabah (the Plant). The Company has consistently operated within the performance limits prescribed by its power purchase agreement (PPA) with Sabah Electricity Sdn Bhd (SESB), its sole offtaker, resulting in the receipt of full capacity payments since 2015. Furthermore, Sepangar continues to fully pass through fuel costs to SESB as the Plant has operated within stipulated heat rates. For FY Dec 2022, the Plant recorded an average 12-month rolling equivalent factor of 94.65%, well above the 87% required by the PPA. Sepangar also met PPA requirements for 5M fiscal 2023.
Following the replenishment of backup fuel (diesel) inventory in FY Dec 2022, Sepangar’s operating cash flow declined to RM39.77 mil (FY Dec 2021: RM52.21 mil). Despite this and a RM7.3 mil dividend payout in fiscal 2022, the Company’s finance service coverage ratio (FSCR) (with cash balances, post-distribution) of 1.86 times on the most recent principal repayment date (3 July 2023) was still above our expectation.
Future dividends will be subject to RAM’s confirmation that the distribution would not adversely impact the rating, alongside outperformance of our sensitised cash flow assumption. Distributions are also conditional on meeting stringent covenants, including annual caps and an FSCR of at least 1.80 times before and after payments are made. Under our stress analysis, which assumes no further dividend payouts, we expect a minimum FSCR of 1.81 times throughout the Sukuk’s tenure, in line with the requirement of an AA1-rated transaction.
Like other independent power producers, the Company remains exposed to regulatory and single-project risks.
Seri Nuralya Munawir
(603) 3385 2484
Chong Van Nee, CFA
(603) 3385 2482
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Ratings on Sepangar Bay Power Corporation Sdn Bhd