RAM Ratings affirms Sepangar’s AA1/Stable sukuk rating

Published on 15 Aug 2023.

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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.


Analytical contacts
Seri Nuralya Munawir
(603) 3385 2484

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 2023 by RAM Rating Services Berhad

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