[RAM] RAM Ratings reaffirms Bakun Hydro's AAA/Stable rating

RAM Ratings has reaffirmed the AAA/Stable rating of Bakun Hydro Power Generation Sdn Bhd’s (Bakun Hydro or the Company) RM5.54 bil Sukuk Murabahah (Sukuk) (2016/2031). The rating reflects the Company’s superior cashflow debt coverage, backed by predictable cashflow and minimal demand risk. Except for the year 2029, given the lumpy repayment of the unrated RM1.0 bil Government-Guaranteed (GG) Sukuk in 2028, Bakun Hydro’s finance service coverage ratio (FSCRs, with cash balances) are expected to be robust, coming in at least 2 times throughout the Sukuk’s tenure. 

In addition, the Sukuk is backed by an irrevocable and unconditional liquidity support from the Government of Malaysia (GoM) that is articulated through a strongly worded letter of undertaking (LoU). The LoU requires the GoM to top up any cash shortfall, to ensure that the annual FSCR is preserved at 2 times throughout the Sukuk’s tenure. As per the LoU, the GoM’s obligation cannot be discharged until all amounts due and payable to the sukukholders have been fully settled.

Given that Bakun Hydro provides essential services, the Company has remained in operation during the various stages of the Movement Control Order. Pursuant to the PPA, SESCO is obliged to pay Bakun Hydro for energy output that corresponds to the take-or-pay volume, which is determined by the nominated capacity declared and hours of forced outages, regardless of actual energy taken up.  In January 2020, the Sarawak State Government raised the water tariff vis-à-vis taking or impounding raw water for electricity generation to 2.5 sen/kWh (from the previous 1.0 sen/kWh). The revised tariff has inflated Bakun Hydro’s generating costs. Fortunately, the Company’s Power Purchase Agreement (PPA) allows the additional costs to be largely passed through to its offtaker, Syarikat SESCO Berhad (SESCO), via a corresponding increase in the contract rate. 

Bakun Hydro’s cashflow coverage has improved substantially since its acquisition by Sarawak Energy Berhad (SEB). As at the last repayment date of 11 August 2020, the Company’s FSCR stood at 3.72 times – higher than our projected 2.87 times. This was underscored by reduced outages and cost savings pertaining to synergistic benefits from SEB’s other plants, plus the deferment of some capital expenditure.

Going forward, the Company’s FSCRs are anticipated to remain resilient, supported by highly predictable cashflow, from selling take-or-pay electricity to SESCO. Under RAM’s sensitised case, Bakun Hydro may need a single top-up of about RM120.0 mil from the GoM in 2029 to support its FSCR at 2 times, given the lumpy repayment of the GG Sukuk in the previous year. Bakun Hydro may consider to refinance the GG Sukuk closer to the bullet repayment date in which case the top-up is not required.

Bakun Hydro owns and operates the 2,400 MW Bakun hydroelectric plant (the Plant), under its PPA with SESCO that runs up to 31 March 2043. The Bakun dam, which the Company owns, is Malaysia’s largest producer of hydro-powered electricity and key to the development of the Sarawak Corridor of Renewable Energy. The first unit of the Plant was commissioned in August 2011, with full commissioning achieved in July 2014. 
 

Analytical contact
Wong Ee Loo 
(603) 3385 2521
eeloo@ram.com.my

Media contact
Padthma Subbiah
(603) 3385 2577
padthma@ram.com.my