Fitch Ratings has on Thursday assigned Saudi Electricity Company's (SEC) SR7 billion Sukuk issue with maturity on May 10, 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 SR7 billion and 2007 SR5 billion 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 percent of the face value of the Sukuk (the sum of a purchase price of 90 percent of the nominal value of the Sukuk plus an extra amount of up to 10 percent of the nominal amount). The payable purchase price reduces to 60 percent in 2020, 30 percent 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 program targeted at expanding capacity and optimizing the grids to safeguard security of supply.
