RAM Ratings Reaffirms AA2(s)/Stable Rating of Mukah Power Generation's Sukuk

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1. IB ​ ​Press​ ​Release​ ​Service Published​ ​on:​​ ​IslamicBanker.com​ ​Publications:​ ​https://www.islamicmarkets.com/publications RAM​ ​Ratings​ ​Reaffirms​ ​AA2(s)/Stable​ ​Rating of​ ​Mukah​ ​Power​ ​Generation's​ ​Sukuk 25​ ​October​ ​2017 RAM​ ​Ratings​ ​has​ ​reaffirmed​ ​the​ ​enhanced​ ​rating​ ​of​ ​Mukah​ ​Power​ ​Generation​ ​Sdn​ ​Bhd's​ ​(MPG or​ ​the​ ​Company)​ ​RM665​ ​million​ ​Senior​ ​Sukuk​ ​Mudharabah​ ​Programme​ ​(2006/2021)​ ​at AA2(s)/Stable.​ ​The​ ​enhanced​ ​rating​ ​reflects​ ​support​ ​for​ ​MPG​ ​from​ ​the​ ​larger​ ​Sarawak​ ​Energy Berhad​ ​Group​ ​(SEB​ ​or​ ​the​ ​Group)​ ​which​ ​owns​ ​the​ ​Company​ ​via​ ​its​ ​wholly​ ​owned​ ​subsidiary SEB​ ​Power​ ​Sdn​ ​Bhd. Syarikat​ ​SESCO​ ​Berhad​ ​(SESCO),​ ​a​ ​wholly​ ​owned​ ​subsidiary​ ​of​ ​SEB​ ​and​ ​MPG's​ ​sole​ ​offtaker, has​ ​provided​ ​various​ ​forms​ ​of​ ​assistance​ ​to​ ​the​ ​Company​ ​in​ ​the​ ​past​ ​to​ ​keep​ ​the​ ​Company's financial​ ​performance​ ​intact.​ ​The​ ​support​ ​provided​ ​from​ ​SEB​ ​and​ ​SESCO​ ​have​ ​been​ ​in​ ​the​ ​form of​ ​equity​ ​injection,​ ​revision​ ​in​ ​tariffs​ ​for​ ​a​ ​specified​ ​period​ ​of​ ​time​ ​via​ ​a​ ​Supplementary Agreement​ ​signed​ ​in​ ​2014​ ​and​ ​exclusion​ ​of​ ​major​ ​overhaul​ ​downtime​ ​in​ ​scheduled​ ​outages​ ​in the​ ​computation​ ​of​ ​the​ ​Plant's​ ​equivalent​ ​availability​ ​factor​ ​for​ ​a​ ​specified​ ​period​ ​of​ ​time​ ​in​ ​2016. Assistance​ ​is​ ​also​ ​evident​ ​in​ ​a​ ​Letter​ ​of​ ​Support​ ​(LoS)​ ​extended​ ​to​ ​MPG​ ​by​ ​SESCO,​ ​dated​ ​21 August​ ​2013,​ ​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. MPG​ ​exposure​ ​to​ ​demand​ ​risk​ ​remains​ ​minimal,​ ​given​ ​the​ ​terms​ ​of​ ​its​ ​Power​ ​Purchase Agreement​ ​with​ ​SESCO.​ ​The​ ​Company​ ​is​ ​entitled​ ​to​ ​full​ ​Capacity​ ​Payments,​ ​irrespective​ ​of​ ​the quantum​ ​of​ ​electricity​ ​generated,​ ​subject​ ​to​ ​meeting​ ​certain​ ​performance​ ​requirements.​ ​It​ ​is​ ​also entitled​ ​to​ ​Energy​ ​Payments​ ​for​ ​electricity​ ​sold,​ ​with​ ​an​ ​annual​ ​despatch​ ​commitment​ ​from SESCO​ ​for​ ​at​ ​least​ ​1,400​ ​GWh​ ​(net​ ​capacity​ ​factor​ ​of​ ​66%). Since​ ​its​ ​inception,​ ​MPG's​ ​coal​ ​consumption​ ​rate​ ​has​ ​gradually​ ​risen​ ​due​ ​to​ ​the​ ​usage​ ​of inferior-quality​ ​coal,​ ​while​ ​its​ ​operational​ ​expenses​ ​continue​ ​to​ ​be​ ​exposed​ ​to​ ​cost​ ​fluctuations owing​ ​to​ ​the​ ​absence​ ​of​ ​an​ ​operations​ ​and​ ​maintenance​ ​agreement​ ​to​ ​allow​ ​for​ ​risk​ ​transfer​ ​to​ ​a third​ ​party.​ ​Based​ ​on​ ​RAM's​ ​sensitised​ ​cashflow​ ​projections,​ ​the​ ​Company's​ ​Senior​ ​Sukuk coverage​ ​levels​ ​are​ ​expected​ ​to​ ​decline​ ​to​ ​below​ ​1​ ​time​ ​from​ ​December​ ​2020​ ​onwards,​ ​given increasing​ ​coal​ ​consumption​ ​and​ ​maintenance​ ​costs.​ ​Considering​ ​the​ ​LoS​ ​and​ ​financial​ ​support received,​ ​we​ ​expect​ ​SEB​ ​to​ ​step​ ​in​ ​to​ ​meet​ ​any​ ​future​ ​cash​ ​shortfall​ ​that​ ​the​ ​Company​ ​faces.​ ​As represented​ ​by​ ​the​ ​Company,​ ​we​ ​assume​ ​that​ ​there​ ​will​ ​be​ ​no​ ​distributions​ ​or​ ​subordinated payments​ ​to​ ​SEB.​ ​Elsewhere,​ ​the​ ​Company​ ​remains​ ​exposed​ ​to​ ​single-project​ ​risk​ ​as​ ​it​ ​derives its​ ​income​ ​from​ ​a​ ​specific​ ​project.
2. IB ​ ​Press​ ​Release​ ​Service Published​ ​on:​​ ​IslamicBanker.com​ ​Publications:​ ​https://www.islamicmarkets.com/publications MPG​ ​is​ ​an​ ​independent​ ​power​ ​producer​ ​incorporated​ ​to​ ​construct,​ ​own,​ ​operate​ ​and​ ​maintain​ ​a 270-MW​ ​coal-fired​ ​power​ ​plant​ ​in​ ​Mukah,​ ​Sarawak,​ ​under​ ​a​ ​25-year​ ​PPA​ ​with​ ​SESCO,​ ​which expires​ ​on​ ​15​ ​January​ ​2034. Organisation​ ​Name: News​ ​Type: RAM​ ​Rating​ ​Services​ ​Berhad RATING​ ​ANNOUNCEMENT Source: BNM​ ​Announcements Media​ ​Contact Padthma​ ​Subbiah (603)​ ​7628​ ​1162 padthma@ram.com.my Disclaimer: The​ ​credit​ ​rating​ ​is​ ​not​ ​a​ ​recommendation​ ​to​ ​purchase,​ ​sell​ ​or​ ​hold​ ​a security,​ ​inasmuch​ ​as​ ​it​ ​does​ ​not​ ​comment​ ​on​ ​the​ ​security's​ ​market price​ ​or​ ​its​ ​suitability​ ​for​ ​a​ ​particular​ ​investor,​ ​nor​ ​does​ ​it​ ​involve​ ​any audit​ ​by​ ​RAM​ ​Ratings.​ ​The​ ​credit​ ​rating​ ​also​ ​does​ ​not​ ​reflect​ ​the legality​ ​and​ ​enforceability​ ​of​ ​financial​ ​obligations. RAM​ ​Ratings​ ​receives​ ​compensation​ ​for​ ​its​ ​rating​ ​services,​ ​normally paid​ ​by​ ​the​ ​issuers​ ​of​ ​such​ ​securities​ ​or​ ​the​ ​rated​ ​entity,​ ​and sometimes​ ​third​ ​parties​ ​participating​ ​in​ ​marketing​ ​the​ ​securities, insurers,​ ​guarantors,​ ​other​ ​obligors,​ ​underwriters,​ ​etc.​ ​The​ ​receipt​ ​of this​ ​compensation​ ​has​ ​no​ ​influence​ ​on​ ​RAM​ ​Ratings'​ ​credit​ ​opinions or​ ​other​ ​analytical​ ​processes.​ ​In​ ​all​ ​instances,​ ​RAM​ ​Ratings​ ​is committed​ ​to​ ​preserving​ ​the​ ​objectivity,​ ​integrity​ ​and​ ​independence​ ​of its​ ​ratings.​ ​Rating​ ​fees​ ​are​ ​communicated​ ​to​ ​clients​ ​prior​ ​to​ ​the issuance​ ​of​ ​rating​ ​opinions.​ ​While​ ​RAM​ ​Ratings​ ​reserves​ ​the​ ​right​ ​to disseminate​ ​the​ ​ratings,​ ​it​ ​receives​ ​no​ ​payment​ ​for​ ​doing​ ​so,​ ​except for​ ​subscriptions​ ​to​ ​its​ ​publications. Similarly,​ ​the​ ​disclaimers​ ​above​ ​also​ ​apply​ ​to​ ​RAM​ ​Ratings' credit-related​ ​analysis​ ​and​ ​commentaries,​ ​where​ ​relevant.