KUALA LUMPUR: RAM Rating Services has reaffirmed the AA1 long-term rating (with a stable outlook) of Sarawak Energy Bhd's (SEB) Sukuk Musyarakah programme of up to RM15bil (2011/2036).

It said on Monday the rating reflects SEB's strategic role as the electricity provider in the state and key facilitator of the Sarawak Corridor of Renewable Energy (SCORE).

SEB is an integrated electricity group with a monopoly over the generation, transmission and distribution of electricity in Sarawak, receives strong implicit support from the state.

"Although there is no guarantee that obligates the state to support SEB, SEB is perceived to benefit from a 'very high' likelihood of extraordinary support from the State in the event of financial distress based on our rating methodology on government-linked entities," it said.

RAM Ratings said the rating was moderated by the group's exposure to demand risk, pointing there was immediate overcapacity as it has to take up power from the Bakun hydroelectric plant.

The ratings agency said SEB was also exposed to concentration risk arising from the relatively larger industrial off-takers that would set up operations in SCORE.

It noted the risks were moderated by the agreements with its clients as well as the group's diverse clientele. But then again, most of its customers were from the manufacturing industry.

RAM Ratings also highlighted that since most of SEB's customers were manufacturers, they would still be vulnerable to economic down-cycles.

Alongside the capacity-expansion drive, SEB's balance sheet and debt-servicing ability would be stretched in the near to medium term as power demand from off-takers will lag behind the considerable plant-ups ahead.

Adjusting for the take-or-pay obligations for the purchase of power from Bakun -- which RAM Ratings views as SEB's financing obligation -- SEB's adjusted debt and gearing ratio were RM12bil and 3.18 times as at end-fiscal 2011 (unadjusted debt: RM3.95 billion; unadjusted gearing ratio: 1.05 times).

"Adjusted funds from operations debt coverage (FFODC) stood at 0.05 times as at end-2011 (unadjusted FFODC: 0.14 times). Considering the sheer size of its adjusted debt load stemming from the doubling of its generating capacity by 2014, the group's adjusted gearing is expected to peak at 4.68 times in fiscal 2014. Meanwhile, SEB's adjusted FFODC is envisaged to hover around 0.05 times in the near to medium term," it said.

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