March 20 - Fitch Ratings has assigned Saudi Electricity Company's
(SEC) upcoming international debut Sukuk issue an expected 'AA-(EXP)' rating.
The rating is in line with SEC's 'AA-' Long-term Issuer Default Rating (IDR) and
senior unsecured rating and SEC's 2010, 2009 and 2007 domestic Sukuks' ratings.
The final rating is contingent upon the receipt of final documentation
conforming materially to information already received and details regarding the
The transaction involves the transfer by SEC of a portfolio of assets to Saudi
Electricity Global SUKUK Company, a wholly-owned subsidiary of SEC. In its
capacity as the lessor, this company will lease the assets to SEC. As the
lessee, SEC will pay rental payments in respect of the assets which are intended
to be sufficient to fund the periodic distribution amounts due under the
certificates. On the scheduled dissolution date the trustee may exercise its
rights under the purchase undertaking and require SEC to purchase all of its
rights, title, interests, benefits and other entitlements in and to the assets.
The Sukuk will be issued on an unsecured and unsubordinated basis. Among other
aspects, the Sukuk benefits from a negative pledge and a cross default clause.
Proceeds of the issuance will be used for general corporate purposes. The
certificates are expressed to be governed by English law.
SEC is the incumbent electric utility in the Kingdom of Saudi Arabia (KSA;
'AA-'/Stable/'F1+'). Its ratings are aligned with the sovereign in accordance
with Fitch's parent and subsidiary methodology and state financial support has
historically been very strong. SEC's monopolistic, low-risk, and regulated
electricity transmission and distribution business and dominant presence in the
electricity generation segment within the KSA also support the credit profile.
However, rating concerns include execution risk related to SEC's large capex
programme, low capacity utilisation rates in the electricity generation segment
of the business, high electricity transmission losses, limited visibility in the
current cost structure, and lack of clarity around the process to settle future
fuel costs with Saudi Aramco.
The Stable Outlook on the Long-term IDR mirrors that on the KSA. SEC's liquidity
is strong. At the end of 2011, it had approximately SAR25.9bn in total
liquidity, including SAR7.3bn in cash, with most of the remainder comprising
headroom under existing government and commercial facilities. This compares well
with around SAR8.1bn in debt maturities in 2012, including SAR5bn in Sukuk
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Additional information is available on www.fitchratings.com. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.
Applicable criteria: 'Corporate Rating Methodology', dated 12 August 2011, and
'Rating Sukuk', dated 16 August 2011 are available at www.fitchratings.com.
Applicable Criteria and Related Research:
Corporate Rating Methodology