RAM assigns preliminary AAA(s)/Stable rating to Sarawak Petchem’s proposed Sukuk Wakalah

KUCHING: RAM Ratings has assigned a preliminary rating of AAA(s)/Stable to Sarawak Petchem Sdn Bhd’s proposed RM6 billion Islamic Medium-Term Notes Programme (proposed Sukuk Wakalah).

The preliminary enhanced rating reflects the irrevocable and unconditional guarantee provided by the Company’s shareholders, Permodalan Satok Berhad and Sarawak Economic Development Corporation (SEDC), on a joint and several basis.

The credit strength of the strongest obligor, SEDC, anchors the rating. SEDC’s credit profile reflects that of Sarawak, whose state implicit strength is rated AAA, the highest on the rating scale. This is premised on SEDC’s important role in promoting economic, industrial and social developments in the state.

Sarawak Petchem is tasked with undertaking the development of a methanol plant in Bintulu, Sarawak, which will have a production capacity of 5,000 metric tonnes (MT) per day.

“The construction of the plant, having commenced in 1Q21, is expected to be completed within 34 months by end-2023, with operations scheduled to start by 1Q24,” RAM said in its statement.

“The project cost of US$1.67 billion (or RM7 billion) will be financed by debt of US$1.33 billion, consisting of the proposed sukuk wakalah and a US dollar-denominated term loan, and advances from SEDC of about US$334 million.

Excluding the guarantee, Sarawak Petchem’s credit profile considers its strong project fundamentals, backed by favourable arrangements with national oil company, Petroliam Nasional Berhad (Petronas).

The supplier of natural gas for the project, Petronas also provides technical support and expertise and will be the offtaker of the company’s methanol products. The cost of Sarawak Petchem’s main input, natural gas, is tied to methanol prices net of freight charges under an agreement with Petronas, which offers the Company some protection against the volatile prices of methanol, a globally traded commodity.

“We view Sarawak Petchem’s relationship with SEDC to be very close. Despite it having only a 30 per cent stake in the Company, SEDC is heavily involved in its operations at board level.

“The joint and several guarantee provided by SEDC reinforces this link. Upon the Plant’s completion and commissioning, Sarawak Petchem is expected to be a key contributor to the earnings of SEDC and Permodalan Satok (investment arm of Yayasan Hartanah Bumiputera Sarawak), with which the Company likewise enjoys a close relationship.”