Global Arab Network | Mature in 2030 - Fitch Assigns Saudi Electricity Company Sukuk Expected 'AA-' Rating

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Mature in 2030 - Fitch Assigns Saudi Electricity Company Sukuk Expected 'AA-' Rating

Global Arab Network - - Mohammed Almasri

Monday, 19 April 2010 13:46

Fitch Ratings has today assigned Saudi Electricity Company's (SEC) upcoming Sukuk issue an expected 'AA-' rating. The rating is in line with SEC's Long-term Issuer Default and senior unsecured 'AA-' ratings.

The structure for the Sukuk is similar to that of SEC's 2009 SAR7bn and 2007 SAR5bn Sukuks, which are also rated 'AA-' by Fitch. The transaction involves the transfer by SEC of a portfolio of assets to a custodian, Sukuk Electricity Company, a wholly-owned subsidiary of SEC. The asset portfolio comprises rights to provide service connections and the entitlement to levy and receive a one-time charge for each connection.

The final rating is contingent upon the receipt of final documentation conforming materially to information already received and details regarding the Sukuk amount.

The Sukuk will be issued on an unsecured and unsubordinated basis and matures in 2030. Sukuk holders are entitled to a quarterly periodic distribution amount and can put the Sukuk to the issuer after seven, 10, 15 and 20 years and also following an event of default. If the issue is exercised after seven years, Sukuk holders are entitled to 100% of the face value of the Sukuk (the sum of a purchase price of 90% of the nominal value of the Sukuk plus an extra amount of up to 10% of the nominal amount). The payable purchase price reduces to 60% in 2020, 30% in 2025 and zero at expiry. Fitch therefore views the effective maturity of the Sukuk as seven years.

Among other aspects, the Sukuk benefits from a negative pledge and a cross default clause. Sukuk holders are protected against the negative impact on earnings of the possible entry of new competitors into the market as a result of the government's plans to restructure the sector. This protection is in the form of an agreement by SEC to top up the reserve amount with an amount equal to the shortfall resulting from the possible introduction of competition in the power distribution sector. Fitch also notes that the restructuring is likely to be implemented gradually and expects that SEC will continue to be the dominant player for the foreseeable future. A similar protection mechanism is in place to cover for a reduction in income as a result of negative tariff revisions.

Proceeds from the issue will be used for general corporate purposes and implementation of an investment programme targeted at expanding capacity and optimising the grids to safeguard security of supply.

Global Arab Network

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