RAM Ratings has reaffirmed the enhanced rating of Mukah Power Generation Sdn Bhd's (the Company) RM665 million Senior Sukuk Mudharabah Programme (2006/2021) at AA2(s)/Stable. The enhanced rating reflects support for Mukah Power from the larger Sarawak Energy Berhad Group (the Group) that the Company belongs to.
Support from Sarawak Energy is evinced by an equity injection of RM268 million into Mukah Power in September 2013, to facilitate the early redemption of the Company's Junior Sukuk. In March 2014, Mukah Power and Syarikat SESCO Berhad (the state utility company of Sarawak and a wholly-owned subsidiary of Sarawak Energy) signed a Supplementary Power Purchase Agreement (PPA) to boost the Company's financial position retrospectively from 2013, via an increase in tariffs for capacity payments (CP) in 2013 and 2014 and for energy payments (EP) throughout the tenure of the PPA. In addition, SESCO had extended a Letter of Support, dated 21 August 2013, to Mukah Power, ensuring that the Company will meet its financial obligations under the Senior Sukuk throughout the tenure of the facility.
The stand-alone credit profile of the Senior Sukuk remains supported by minimal demand risk. The Company is entitled to full CPs, irrespective of the quantum of electricity generated, subject to meeting certain performance requirements. It is also entitled to EPs for electricity sold, with an annual despatch commitment from SESCO in respect of at least 1,400 GWh (net capacity factor of 66%).
Meanwhile, Mukah Power's debt-servicing ability is expected to be strained over the remaining tenure of the Senior Sukuk. Since inception, Mukah Power's coal-consumption rate has gradually risen due to the usage of inferior-quality coal, while its operational expenses continue to be exposed to cost fluctuations due to the absence of an operations and maintenance agreement. Considering this, we foresee Mukah Power's Senior Sukuk coverage levels declining to a minimum of 1.08 times over the remaining tenure should the Group not extend financial support to meet the Sukuk Payment Account Balance by end-December 2016. As per the Company's representation, we assume that there will be no distributions or subordinated payments to Sarawak Energy. Elsewhere, the Company remains exposed to single-project risk as it derives its income from a specific project.
Mukah Power is an independent power producer incorporated to construct, own, operate and maintain a 270-MW coal-fired power plant in Mukah, Sarawak, under a 25-year power-purchase agreement with SESCO, which expires on 15 January 2034.
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Chinthamani Thanneermalai
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chinthamani@ram.com.my
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