KUCHING: RAM Ratings has upgraded the enhanced long-term rating of Mukah Power Generation Sdn Bhd’s (Mukah Power Generation) RM665 million Senior Sukuk Mudharabah Programme (2006/2021) to AA1(s), from AA2(s).
Concurrently, the outlook on the rating has been revised from positive to stable. This follows the recent upgrade of Sarawak Energy Bhd’s (Sarawak Energy) rating from AA1/positive to AAA/stable in October 2019.
The enhanced rating continues to reflect Sarawak Energy’s strong support for Mukah Power Generation, which the group owns via its 100 per cent-held subsidiary, Sarawak Energy Power Sdn Bhd.
Mukah Power Generation is a power producer incorporated to construct, own, operate and maintain a 270MW coal-fired power plant in Mukah, Sarawak, under a 25-year Power Purchase Agreement (PPA) with Syarikat SESCO Berhad (SESCO) – a wholly owned subsidiary of Sarawak Energy and Mukah Power Generation’s sole off-taker.
The PPA will expire on January 15, 2034.
To boost its financial performance, Mukah Power Generation inked a new PPA with SESCO, which took effect on January 1, 2018.
“Sarawak Energy and SESCO have demonstrated their support through an equity injection, a Supplementary Agreement to increase tariffs and the exclusion of major overhaul downtime – under scheduled outages – in the computation of the equivalent availability factor and capacity payments (CPs) of Mukah Power Generation’s plant (the Plant) for a specific span in 2016,” RAM said in a statement.
“These forms of support are further backed by a Letter of Support (LoS) from SESCO dated 21 August 2013, under which SESCO undertakes to ensure that Mukah Power Generation meets its financial obligations throughout the tenure of the Senior Sukuk.
“Under the new PPA terms, Mukah Power Generation’s exposure to demand risk remains minimal. The company is entitled to full CPs, subject to meeting certain performance requirements.
“Mukah Power Generation is also entitled to Energy Payments for electricity sold and is expected to be able to fully pass through its fuel cost – so long as the Plant operates within the allowable heat rates under its PPA.”
Despite Mukah Power Generation’s volatile performance as well as its fluctuating capital and operating expenses in the last few years – due to the absence of an operation and maintenance agreement – RAM saw that its top line and OPBDIT margin improved a respective 11.7 and 33.7 per cent y-o-y in FY18, following an upward tariff revision under its new PPA. A similar trend is observable for 1HFY19.
“Under RAM’s conservative assumptions, which include dividend payouts, the company is expected to register a healthy average Senior Sukuk Coverage Ratio (SSCR) of 1.40 times over the remaining sukuk tenure.”