RAM Ratings has reaffirmed the AA2(s)/Stable rating of Sarawak Power Generation Sdn Bhd's (SPG or the Company) RM215 million Serial Sukuk Musharakah (2006/2021) (Sukuk). The enhanced rating reflects support for SPG from the larger Sarawak Energy Berhad (SEB) Group that the Company belongs to.
Support from SEB was evinced by the partial early redemption of RM95 million of the Sukuk in fiscal 2013. Additionally, SEB contributed RM360 million of advances to SPG to fund the conversion of the latter's power plant (the Plant) from Open Cycle Gas Turbine to Combined Cycle Gas Turbine (CCGT) mode in fiscal 2010. Meanwhile, Syarikat SESCO Berhad (SESCO, the state utility company of Sarawak and a wholly-owned subsidiary of SEB) had extended a letter of support to SPG, dated 24 September 2007, in which it undertakes to ensure - either by equity, loans, grants and/or other means - that the Company fully and promptly meets all its financial obligations in respect of the Sukuk throughout the tenure of the facility.
The stand-alone issue rating of the Sukuk remains supported by SPG's healthy cash-generating ability. Despite operational challenges at Unit 8 of the Plant, SPG's debt-servicing ability is expected to be robust, as indicated by its projected annual Sukuk Service Coverage Ratio (SSCR, without cash balances, calculated over a 12-month period on semi-annual principal repayment dates) of at least 2.40 times throughout the remaining tenure of the Sukuk. Nevertheless, the existing formula for distribution is not particularly prohibitive, allowing SPG to make substantial distributions to its shareholders should it choose to do so. Should SPG make distributions on a forward-looking basis, our sensitised cashflow projections show that its minimum SSCR (with cash balances, post-distribution, calculated over a 12-month period on semi-annual principal repayment dates) would reach 1.50 times throughout the Sukuk's remaining tenure.
Typical of independent power producers, SPG is exposed to single-project risk. The absence of a formal operation and maintenance agreement between SPG and SESCO may give rise to disputes in the event of a breakdown. The arrangement outlined in the power-purchase agreement between the 2 companies covers only broad issues on responsibility and compensation. However, the possibility of such a dispute is viewed as remote, given SPG's close relationship with its parent, SEB.
SPG had been awarded a licence to build, own and operate a 317-MW (net dependable capacity) CCGT facility in Tanjung Kidurong, Bintulu, Sarawak.
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