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RAM Ratings affirms Bakun Hydro’s sukuk at AAA/Stable
Published on 06 Nov 2024.
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 projected superior cashflow coverage throughout the Sukuk’s tenure, bolstered by liquidity support from the Government of Malaysia. Through a strongly-worded irrevocable and unconditional letter of undertaking, the government commits to top up any cash shortfall to ensure and maintain the Company’s annual finance service coverage ratio (FSCR) at 2.0 times throughout the Sukuk’s tenure. Bakun Hydro’s healthy financial profile is anchored by a favourable 30-year take-or-pay power purchase agreement that runs up to 31 March 2043 with its sole offtaker and sister company, Syarikat SESCO Berhad (SESCO).
Bakun Hydro’s stronger net electricity output in 2023 (+6%) and 1H 2024 (+8%) is reflective of the sound operating performance of its 2,400 MW hydroelectric plant (the Plant). This translated into increased revenue of RM1.47 bil and RM757.1 mil in FY Dec 2023 and 1H FY Dec 2024, respectively (FY Dec 2022: RM1.43 bil; 1H FY Dec 2023: RM712.1 mil). Outages during the period were caused by minor issues, which have been resolved.
The Company’s FSCR was a strong 3.46 times on the last sukuk repayment date of 12 August 2024, exceeding our projected FSCR of 2.97 times; this was mainly driven by the receipt of an annual instalment from SESCO under an earlier disputed bill. Given the payment certainty, our projection factors in the remaining payments from 2025 onwards. With a planned RM349.1 mil dividend distribution by end-2024, the Company may still need a single top-up of circa RM230.0 mil in 2029 after the bullet repayment on its unrated RM1.0 bil Government-Guaranteed Sukuk (GG Sukuk) in 2028, to keep its FSCR at a minimum 2.0 times. The top-up is reflected only in our sensitised scenario, which assumes lower revenue. If Bakun Hydro refinances the GG Sukuk, the top-up will not be necessary. As a single-asset company, however, Bakun Hydro is inherently exposed to single-project and force majeure risks.
In April 2024, Bakun Hydro successfully increased the Plant’s installed capacity from 2,400 MW to 2,520 MW. The Bakun Dam commissioned in July 2014, is Malaysia’s largest producer of hydro-powered electricity and key to the development of the Sarawak Corridor of Renewable Energy.
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.
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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
