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Wednesday, 26 March 2014

Saudi Electricity Company (SEC) names banks for sukuk

Saudi Electricity Company (SEC) has appointed three international banks for potential sukuk offering and roadshows in the US.
Mubasher Trade said on Tuesday that Saudi Electricity will conduct a series of meetings with fixed-income investors in the US and Europe, starting today (March 25). An offering of Sukuk may follow the investor meetings, subject to market conditions and required regulatory approvals.
Meanwhile, SEC has mandated Deutsche Bank, HSBC, and JP Morgan in connection with the potential offering.
Earlier today, Fitch assigned Saudi Electricity Global Sukuk Company 3's upcoming international Sukuk issue a 'AA-(EXP)' expected rating. Mubasher and Fitch didn’t disclose size of the SEC sukuk.
Fitch said SEC has obtained an additional 49.5 billion riyal loan from the Saudi government this month.
“SEC is drawing down SAR51bn ($14 billion; Dh51.38 billion) of interest free loans from the government to partially finance its capital projects. The government also provided an additional SAR49.5bn loan to SEC in March 2014. Since its inception in 1999, SEC has not paid for fuel provided by Saudi Aramco. SEC transferred a total of SAR57bn in 2007, 2011 and in 2012 of Aramco payables to the Ministry of Finance, converting them to long-term government payables. The government has deferred all dividend payments from SEC since inception, with the latest 10-year deferral running through till 2020,” the ratings agency said.
Fitch said liquidity at SEC is adequate with approximately SAR23.8bn in total liquidity at end-December 2013, including SAR4bn in cash, with the remainder mostly comprising available committed government facility, export credit agency (ECA) and commercial facilities. In addition, SEC issued SAR4.5bn sukuk notes in January 2014. This compares with around SAR8.8bn of maturities due in 2014, and significantly negative free cash flow expectations until 2016 financial year.
The company remains dominant in the Kingdom's electricity generation sector despite the emergence of independent power producers (IPPs), which held 80% of the Kingdom's of total generation capacity at FYE12. SEC retains up to 50% equity positions in five IPPs, sources fuel on their behalf and purchases all electricity produced. Utilising generating capacity at IPPs ahead of its own plants is expected to result in some Ebitda margin compression in coming years, particularly in light of seasonal swings in electricity demand in the Kingdom.
SEC is instrumental in meeting the country's growing electricity demand and executing the state policy on providing subsidised electricity within Saudi Arabia, along with developing a robust, reliable, and stable electricity infrastructure. SEC's current capital spending plan of about SAR157bn ($42bn) over the next three years (2014-2016) includes investment in electricity generation capacity, transmission infrastructure, and distribution assets.
Historically, the maximum annual capital investment by SEC has been around SAR41bn. Delivery of an even larger capex programme than the one executed previously, on time and on budget, while simultaneously managing other construction-related risks could be challenging, Fitch said.
(Emirates Business / 25 March 2014)
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