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RAM Ratings affirms Bakun Hydro
Published on 15 Dec 2023.
RAM Ratings has affirmed 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 expected superior cashflow coverage throughout the Sukuk’s tenure, further backed by liquidity support from the Government of Malaysia through an irrevocable and unconditional letter of undertaking (LoU) that strongly iterates its commitment and obligation to support the continued performance of Bakun Hydro’s Sukuk. 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 tenure. Bakun Hydro’s sound financial profile is anchored by its favourable 30-year take-or-pay power purchase agreement (PPA) with its sole offtaker and sister company, Syarikat SESCO Berhad (SESCO).
Bakun Hydro’s operating performance remains healthy. The impact of outages observed to date has caused only a minimal take-or-pay revenue reduction of less than 1%. This kept the Company’s revenue steady at RM1.43 bil (+1.3% y-o-y) and RM712.1 mil (+0.3% y-o-y), respectively, in FY Dec 2022 and 1H FY Dec 2023. Its FSCR of 3.20 times on the last sukuk repayment date of 11 August 2023 exceeded our 2.93 times projection as the Company’s cash pile was boosted by the first instalment of monies recovered from an earlier bill disputed with SESCO.
While our projections have prudently assumed no receipt of the remaining payment, recovery in subsequent years is expected to provide cashflow upside to the transaction. This is expected to offset the increase in total expenses (excluding depreciation, impairment and water levy) due to higher centralised support functions provided by SEB Power Sdn Bhd to enhance operational efficiency and should reduce the expected top-up amount required of the government under our sensitised projection.
Still, under RAM’s sensitised case, the Company may need a single government top-up of about RM300 mil in 2029 to keep its FSCR at a minimum of 2.0 times due to a lumpy repayment on its unrated RM1.0 bil Government-Guaranteed Sukuk in 2028. The top-up, however, is reflected only 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. As a single-asset company, Bakun Hydro is inherently exposed to single project and force majeure risks.
Bakun Hydro owns and operates the 2,400 MW Bakun hydroelectric plant in Sarawak under a PPA 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.
Analytical contacts
Wong Ee Loo
(603) 3385 2521
eeloo@ram.com.my
Chong Van Nee, CFA
(603) 3385 2482
vannee@ram.com.my
Media contact
Sakinah Arifin
(603) 3385 2500
sakinah@ram.com.my
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
