KUALA LUMPUR: RAM Rating Services Bhd has reaffirmed the AAA rating of Syarikat SESCO Bhd's RM605 million Al-Bai Bithaman Ajil Islamic Debt Securities (2001/2012) (BaIDS); the long-term rating has a stable outlook.
Below is the statement issued by RAM Ratings on Monday, Oct 4
SESCO is the exclusive provider of electricity in Sarawak. The rating reflects the strong implicit support it enjoys by virtue of its strategic importance as Sarawak's sole power utility; the company plays an important role in promoting the economic development of the State.
Given the plans to tap the state's vast energy resources via the development of the Sarawak Corridor of Renewable Energy, we expect SESCO's expansion to be aligned with Sarawak's overall growth agenda, thus reinforcing its strategic function.
The rating is also supported by SESCO's robust financial profile, characterised by its healthy balance sheet as well as its solid and predictable cashflow-generating aptitude.
Considering the capacity-payment obligations under SESCO's power purchase agreements (PPAs) with the three existing independent power producers in Sarawak, and factoring in its support for Sarawak Power Generation Sdn Bhd's debt obligations (RM215 million Serial Sukuk Musharakah) as financial commitments, the company's adjusted net gearing ratio stood at a healthy 0.66 times as at end-December 2009; its adjusted funds from operations debt-coverage (FFODC) ratio came up to 0.23 times. Excluding these capacity-payment obligations and the support for SPG's debt obligations, SESCO's FFODC ratio would work out to around 1 time.
On the other hand, SESCO will also need to contend with a sizeable budgeted capital expenditure (capex) of RM3.2 billion over the next 3 years, which could inflate its debt levels.
The capex has been earmarked for the improvement of Sarawak's transmission and distribution assets, including building a new 500-kilovolt transmission backbone system over the next few years.
As funding details have yet to be firmed up at this juncture, we caution that SESCO's balance sheet and debt-servicing ability may come under pressure if the capex were to be largely supported by additional debt.
Furthermore, the scale of the Bakun project could weigh down the financials of SESCO and its parent, SARAWAK ENERGY BERHAD [] (SEB).
It has been reported that since energy from Bakun will not be transmitted to Peninsular Malaysia in the near term and the undersea-transmission-cable project will be deferred, SESCO may take up the 1,776 MW of firm capacity coming on-stream from Bakun.
Upon greater clarity and finalisation of the terms and conditions, ranging from Bakun's ownership structure to off-take- and tariff-related issues, we will reassess the financial impact of such a large endeavour on SESCO (and the larger SEB Group).
Meanwhile, the scale of the Bakun project will push Sarawak's reserve margin above 100% once it is commissioned, depending on how soon big-load off-takers can be secured.
In view of the sizeable capacity coming on-stream, it is imperative that SESCO secures large off-takers as soon as possible. The tariff structure offered to such large off-takers will remain a key consideration in supporting the commercial viability of the Bakun power project.
Below is the statement issued by RAM Ratings on Monday, Oct 4
SESCO is the exclusive provider of electricity in Sarawak. The rating reflects the strong implicit support it enjoys by virtue of its strategic importance as Sarawak's sole power utility; the company plays an important role in promoting the economic development of the State.
Given the plans to tap the state's vast energy resources via the development of the Sarawak Corridor of Renewable Energy, we expect SESCO's expansion to be aligned with Sarawak's overall growth agenda, thus reinforcing its strategic function.
The rating is also supported by SESCO's robust financial profile, characterised by its healthy balance sheet as well as its solid and predictable cashflow-generating aptitude.
Considering the capacity-payment obligations under SESCO's power purchase agreements (PPAs) with the three existing independent power producers in Sarawak, and factoring in its support for Sarawak Power Generation Sdn Bhd's debt obligations (RM215 million Serial Sukuk Musharakah) as financial commitments, the company's adjusted net gearing ratio stood at a healthy 0.66 times as at end-December 2009; its adjusted funds from operations debt-coverage (FFODC) ratio came up to 0.23 times. Excluding these capacity-payment obligations and the support for SPG's debt obligations, SESCO's FFODC ratio would work out to around 1 time.
On the other hand, SESCO will also need to contend with a sizeable budgeted capital expenditure (capex) of RM3.2 billion over the next 3 years, which could inflate its debt levels.
The capex has been earmarked for the improvement of Sarawak's transmission and distribution assets, including building a new 500-kilovolt transmission backbone system over the next few years.
As funding details have yet to be firmed up at this juncture, we caution that SESCO's balance sheet and debt-servicing ability may come under pressure if the capex were to be largely supported by additional debt.
Furthermore, the scale of the Bakun project could weigh down the financials of SESCO and its parent, SARAWAK ENERGY BERHAD [] (SEB).
It has been reported that since energy from Bakun will not be transmitted to Peninsular Malaysia in the near term and the undersea-transmission-cable project will be deferred, SESCO may take up the 1,776 MW of firm capacity coming on-stream from Bakun.
Upon greater clarity and finalisation of the terms and conditions, ranging from Bakun's ownership structure to off-take- and tariff-related issues, we will reassess the financial impact of such a large endeavour on SESCO (and the larger SEB Group).
Meanwhile, the scale of the Bakun project will push Sarawak's reserve margin above 100% once it is commissioned, depending on how soon big-load off-takers can be secured.
In view of the sizeable capacity coming on-stream, it is imperative that SESCO secures large off-takers as soon as possible. The tariff structure offered to such large off-takers will remain a key consideration in supporting the commercial viability of the Bakun power project.
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