Wednesday, December 7

RAM Ratings assigns AAA rating to S’wak Hidro’s sukuk

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The Bakun Dam, which Sarawak Hidro owns, is Malaysia’s largest hydropower producer and key to the development of the Sarawak Corridor of Renewable Energy.

The Bakun Dam, which Sarawak Hidro owns, is Malaysia’s largest hydropower producer and key to the development of the Sarawak Corridor of Renewable Energy.

KUCHING: RAM Ratings has assigned an AAA/Stable rating to Sarawak Hidro Sdn Bhd’s (Sarawak Hidro or the Company) Sukuk Murabahah of up to RM5,540 million in Nominal Value (Sukuk Murabahah).

In a statement, it said the rating considers the Federal Government of Malaysia’s (Federal Government) commitment to top up any shortfall in cashflow throughout the life of the Sukuk Murabahah.

This feature ensures the company meets its targeted finance service coverage ratio (with cash balances, post-distribution, calculated on payment dates) of two times – a level that is commensurate with an AAA rating under RAM’s project-finance rating framework.

This irrevocable and unconditional liquidity support from the Federal Government, which has 100 per cent ownership of Sarawak Hidro, is articulated through the strongly worded letter of undertaking from the Government of Malaysia (GoM), the agency said.

“The vital role that Sarawak Hidro plays drives our view that the Federal Government is expected to make timely payment when necessary as outlined in the GoM’s letter of undertaking” RAM’s Infrastructure & Utilities Ratings co-head Chong Van Nee highlighted.

The Bakun Dam, which Sarawak Hidro owns, is Malaysia’s largest hydropower producer and key to the development of the Sarawak Corridor of Renewable Energy (SCORE).

Sarawak Electricity Supply Corporation (SESCO) – a wholly owned subsidiary of Sarawak Energy Berhad (SEB, rated AA1/Stable) – is the sole off-taker of Sarawak Hidro’s electricity output. SESCO has held back about 28 per cent of Sarawak Hidro’s potential full revenue since January 2015 up to end-May 2016 even though it has an existing take-or-pay arrangement under its power purchase agreement (PPA) with Sarawak Hidro.

“Though this raises a concern, Sarawak Hidro and SESCO have initiated dispute resolution proceedings to resolve the matter.

“Furthermore, the Federal Government is expected to make good the deficit in cashflow coverage via its liquidity commitment under the letter of undertaking,” the agency said.

In the event Minister of Finance (Incorporated) disposes off its shareholding in Sarawak Hidro, RAM Ratings noted that it must retain at least 51 per cent throughout the tenure of the issue, as required under the transaction covenants.

“That said, we take comfort that the letter of undertaking will remain in force, requiring the Federal Government to honour its obligations under the liquidity support arrangement despite any future change in shareholding.

“Sarawak Hidro is also bound by other strict covenants which tighten the transaction structure and provide further certainty throughout the tenure of the Sukuk Murabahah,” it said.

Sarawak Hidro is an independent power producer (IPP) that owns and operates the 2,400 MW Bakun Hydroelectric plant (the Plant), under the PPA which runs up to March 31, 2043. The first unit of the Plant was commissioned in August 2011 and full commissioning was achieved in July 2014. The plant currently supplies about 50 per cent of Sarawak’s load demand.