Moody assigns first-time A3 issuer rating to Sarawak Energy

07 Jun 2022 07:21pm
Moody’s says the stable outlook on the rating reflects its expectations that Sarawak Energy's strategic importance to Sarawak
Moody’s says the stable outlook on the rating reflects its expectations that Sarawak Energy's strategic importance to Sarawak
KUALA LUMPUR - Moody’s Investors Service has assigned first-time local and foreign A3 issuer ratings to Sarawak Energy Bhd (SEB) with a stable outlook.

At the same time, Moody’s has assigned a baa2 baseline credit assessment (BCA) to SEB.

Moody’s said the stable outlook on the rating reflects Moody’s expectations that SEB's strategic importance to Sarawak and the very high likelihood of support from the government, if and when needed, will remain intact over the next 12-18 months.

"The stable outlook also reflects Moody's view that SEB will maintain a standalone credit profile in line with its BCA.

"An upgrade of SEB's rating is possible if Sarawak's rating is upgraded and SEB maintains its BCA of baa2,” it said in a statement today.

Moody’s said SEB's A3 issuer rating incorporates its BCA of baa2 and a two-notch uplift based on the very high likelihood of support from, and a high level of dependence with the state of Sarawak (A3 stable) under Moody's joint-default analysis approach for government-related issuers.

"SEB's BCA is underpinned by its monopoly position as Sarawak's vertically integrated electric utility with a growing revenue base supported by long-term take-or-pay power purchase agreements (PPAs), competitive tariffs and low cost of operations anchored by hydropower,” it said.

Moody’s said SEB's financial metrics are at a moderate level and the company is exposed to customer concentration risks, as well as capital spending and execution risks to cater to growing demand.

"Moody's expectation of a very high likelihood of government support in times of need reflects SEB's ownership and operations of essential electricity infrastructure.
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"The company plays a pivotal role in enabling Sarawak's economic diversification, which will reduce the state's reliance on hydrocarbons and other commodities.

"This assumption of support also factors in the government's full ownership and likelihood of financial support for SEB as shown by its track record,” it said.

Besides, Moody’s expects SEB's financial profile to trend upwards over the next five years.

Established in 1921, SEB is the vertically integrated electric utility monopoly in the state of Sarawak (A3 stable) in Malaysia (A3 stable).

As of Dec 31, 2021, SEB is 100 per cent directly and indirectly owned by the State Financial Secretary Sarawak (SFS).

It has three core business segments: monopoly electricity transmission and distribution network operation, retail, and power generation and resources, which supply coal to the coal-fired plants in its generation fleet. - Bernama