RAM Ratings has reaffirmed the AA1/Stable rating of Sarawak Energy Berhad's (SEB or the Group) RM15 billion Sukuk Musyarakah Programme (2011/2036). The reaffirmation of the rating is premised on the continued strong support that SEB enjoys from the Sarawak state and federal governments, as well as the Group's financial performance which remains in line with our expectations. SEB has a monopoly over the transmission and distribution of electricity in the state, which highlights its pivotal role in the Sarawak Corridor of Renewable Energy (SCORE). The Group, in our view, benefits from a "very high" likelihood of extraordinary governmental support in the event of financial distress, based on our rating methodology for government-linked entities. The rating also considers SEB's hefty debt load consistent with its capacity expansion plans, which are proactively paced in accordance with the rate of securing bulk customers.
SEB's large capex programme had resulted in its debt level increasing to RM7.50 billion as at end-2014 (end-2013: RM6.10 billion). The Group's adjusted gearing ratio remained high at 2.93 times as at end-2014, albeit significantly improved from 3.44 times as at end-2013 due to an enlarged equity base. SEB's adjusted funds from operations debt coverage ratio was relatively unchanged at 0.08 times in fiscal 2014 (fiscal 2013: 0.07 times), and is envisaged to be maintained in fiscal 2015. While these ratios have factored in SEB's total debt drawdown of RM5 billion over the next 4 years, the projections have not accounted for the Group's uncommitted plant-ups, i.e., the Baleh, Baram and Samalaju plants. To date, these long-term projects have yet to be approved by the State Government while their funding route and timeline remain uncertain at this juncture, subject to SEB's financing capabilities and the take-up rate of SCORE customers.
SEB remains exposed to demand risk, given that the progressive take-up of SCORE customers is dependent on the completion of their facilities. About 90% of the state's existing installed capacity has been sold to date, with full take-up by big-load customers expected in 5-6 years. Customer-concentration risk is also present as SCORE off-takers create lumpiness in demand growth - Press Metal Berhad's facilities in Sarawak accounted for 45% of SEB's total energy sales in 2014.
Elsewhere, the Group faces power-supply-concentration risk as about 51% of Sarawak's existing power supply emanates from the 2,400-MW Bakun plant, which is owned by the Federal Government (via Sarawak Hidro Sdn Bhd). Any major interruption in power supply could undermine the state's system security and pose a challenge to SEB in negotiations with potential SCORE customers. Notably, reliance on the Bakun plant has reduced from 59% since the completion of the 944-MW Murum hydropower plant in June 2015.
Media contact
Chin Wynn
(603) 7628 1170
chinwynn@ram.com.my
© Press Release 2015
