RAM Ratings places Mukah Power’s rating on positive outlook
KOTA KINABALU: RAM Ratings has revised the outlook on the AA2(s) rating of Mukah Power Generation Sdn Bhd’s (MPG) RM665 million Senior Sukuk Mudharabah Programme (2006/2021) to positive from stable, following the recent revision of Sarawak Energy Behd’s (SEB) rating outlook.
The enhanced rating continues to reflect SEB’s strong support for MPG, which the former owns via its 100 per cent-held subsidiary, SEB Power Sdn Bhd.
MPG is an independent power producer incorporated to construct, own, operate and maintain a 270MW coal-fired power plant in Mukah, Sarawak, under a 25-year PPA with SESCO, which will expire on January 15, 2034.
In December 2017, a new Power Purchase Agreement (PPA) was inked between MPG and Syarikat SESCO Bhd (Sesco), a wholly owned subsidiary of SEB and MPG’s sole off-taker, and was implemented from January 1, 2018.
Support from SEB and SESCO have also taken the form of equity injection, a revision in tariffs for a specific period via a supplementary agreement signed in 2014 and the exclusion of major overhaul downtime in scheduled outages when computing MPG’s plant’s equivalent availability factor for a specific span in 2016.
“Such assistance is also evident from a Letter of Support (LoS) – dated August 21, 2013 - extended to MPG by Sesco, in which the latter undertakes to ensure that the company fully and promptly meets all its financial obligations in respect of the senior sukuk throughout the tenure of the facility,” it said in a statement yesterday.
“MPG’s exposure to demand risk remains minimal under the terms of its new PPA with Sesco. The company is entitled to full capacity payments, subject to meeting certain performance requirements. It is also entitled to energy payments for electricity sold.”
Under the new PPA, the company is expected to be able to fully pass through its fuel costs as long as the Plant operates within allowable heat rates, as per the PPA.
Since its inception, MPG’s operating expenses have been exposed to cost fluctuations due to the absence of an operation and maintenance (O&M) agreement to allow for risk transfer to a third party.
“Based on our sensitivities, we expect MPG to register a minimum senior sukuk coverage ratio of 1.30 times throughout the tenure of the sukuk as the company projects hefty capex and O&M expenditure for the Plant between 2018 and 2021,” RAM continued.
“Given the LoS and financial support from Sesco, we expect SEB to step in to meet any potential cash shortfall that the Company may face.
“As represented by the company, we assume that there will be no distributions or subordinated payments to SEB. In the meantime, MPG remains exposed to single-project risk as it derives its income from a specific project.”