Global Arab Network | Fitch Assigns Saudi Electricity Company SAR7bn Sukuk Final 'AA-' Rating

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Fitch Assigns Saudi Electricity Company SAR7bn Sukuk Final 'AA-' Rating

Global Arab Network - - Gamal Ragay

Thursday, 13 May 2010 11:44

Fitch Assigns Saudi Electricity Company Sukuk Final 'AA-' Rating

Fitch Ratings has today assigned Saudi Electricity Company's (SEC) SAR7bn Sukuk issue with maturity on 10 May 2030 a final 'AA-' rating. This follows receipt of final documentation.

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 Sukuk is issued on an unsecured and unsubordinated basis. 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. 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.

SEC is the incumbent electric utility in the Kingdom of Saudi Arabia. Its ratings are aligned with the sovereign in accordance with Fitch's parent/subsidiary methodology.

Global Arab Network

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