Sarawak Energy capable of taking on debt from acquiring Sarawak Hidro

KUCHING: Sarawak Energy Bhd (SEB) is able to take on additional debt for the proposed acquisition of Sarawak Hidro Sdn Bhd – owner and operator of the Bakun hydroelectric plant – as well as the existing debts of the acquiree, provided the Group maintains its existing planned capacity expansions.

According to RAM Ratings in a statement yesterday, the existing debts of Sarawak Hidro after the proposedacquisitioncouldbeoffset by future payment obligations to Sarawak Hidro under the powerpurchase agreement between the two parties – these have already been considered by RAM as adjustments to Sarawak Energy’s debt.

“In addition, Sarawak Energy’s ownership of Sarawak Hidro could result in long-term savings in electricity generation cost and economies of scale, with full details pending finalisation of the proposed acquisition,” RAM said in a note yesterday.

Sarawak Energy is a vertically integrated electricity group with a monopoly over the transmission and distribution of electricity in Sarawak. The Group has a RM15 billion Sukuk Musyarakah Programme ( 2011/ 2036), rated AA1/Stable by RAM.

Meanwhile, Sarawak Hidro – the owner and operator of the 2,400-MW Bakun plant – is the sole independent power producer in Sarawak. Should the proposed acquisition of Sarawak Hidro be completed, Sarawak Energy will fully own all generation plants in the state.

In a separate statement, RAM said it is still examining the rating impact on Sarawak Hidro Sdn Bhd’s Sukuk Murabahah of up to RM5.54 billion in nominal Value (2016/2031) (rated AAA/Stable).

“The rating considers the Federal Government’s liquidity support commitment to top up any shortfall in the Company’s targeted finance service coverage ratio, which is articulated in an irrevocable and unconditional letter of undertaking from the former, effective throughout the tenure of the sukuk.

“However, as Sarawak Energy intends to acquire the entire equity stake in the plant from the Minister of Finance (Incorporated) (MoF), the consent of the sukuk holders wouldhavetobeobtained,giventhat the transaction covenants require a minimum MoF shareholding of 51 per cent throughout the tenure of the issue.

“As plans with regard to the sukuk can only be finalised upon completion of the proposed acquisition, RAM will reassess the rating when more details become available.”