Standard & Poor’s Ratings Services assigned its preliminary A- long-term rating to the approximately $825 million of bonds maturing in 2036 to be issued by Ruwais Power Company PJSC (Shuweihat 2), a project company that owns, insures, operates, and maintains the S2 power generation and seawater desalination plant in Abu Dhabi.
Final ratings will depend upon receipt and satisfactory review of all final transaction documentation, including legal opinions. Accordingly, the preliminary ratings should not be construed as evidence of final ratings. If Standard & Poor’s does not receive final documentation within a reasonable time frame, or if final documentation departs from materials reviewed, Standard & Poor’s reserves the right to withdraw or revise its ratings.
The S2 (or ProjectCo) plant is a base load tolling plant, representing approximately 11.6% of the net installed power capacity and approximately 12.2% of the net installed water capacity of independent power and/or water plants implemented by the Abu Dhabi Water and Electricity Authority (ADWEA; not rated). ADWEA is a wholly owned subsidiary of the government of Abu Dhabi that is implementing the government’s ADWEA Privatization Program, which includes projects in the Emirate of Abu Dhabi and in the Emirate of Fujairah. The proceeds from the proposed bond issuance will be used primarily to refinance existing debt at a lower anticipated cost, and also to return money to shareholders. The 25-year term of the power and water purchase agreement (PWPA) is designed to cover the terms of all refinanced debt.
The contracted capacity of the S2 plant (in the second contract year of commercial operation) consists of 1,503 megawatts of net power capacity, and 100 million imperial gallons per day of net water capacity.
“The S2 plant is located at the Shuweihat complex in the Emirate of Abu Dhabi on the Arabian Gulf coast, approximately 260 kilometers southwest of the city of Abu Dhabi. The S2 plant is integral to meeting the Emirate of Abu Dhabi’s power and water demand and represents a key part of its successful privatization strategy for the power and water sectors. It is the eighth of nine independent water and/or power projects (IWPPs) currently being implemented ADWEA on a “build, own, and operate” basis. ADWEA has used a similar procurement and ownership template and contractual framework with each of the independent power and water projects,” S&P in a statement said.
The preliminary ‘A-‘ long-term rating on S2’s approximately $825 million of bonds maturing in 2036 reflects S2’s stand-alone credit profile (SACP), which we assess at ‘bbb’, and our opinion that there is a “moderately high” likelihood that the Emirate of Abu Dhabi (AA/Stable/A-1) would provide timely and sufficient extraordinary support to S2 in the event of financial distress.
In accordance with our criteria for government-related entities, we assess the likelihood of timely and sufficient extraordinary government support for S2 in a situation of financial distress as “moderately high.”
The stable outlook reflects our expectation that operations will continue in line with our base case with average and minimum DSCRs of 1.24x and 1.21x, respectively, calculated under our criteria and that the “moderately high” likelihood of support from the government is likely to be maintained at least over the medium term. The stable outlook also reflects that on the Emirate of Abu Dhabi. In accordance with our GRE criteria, any change to the ratings of Abu Dhabi would likely result in a similar action on S2.
“We could lower the rating in the event of significant cost increases or forced outage events, which in turn lead to lower average and minimum DSCRs than we currently anticipate. The ratings could come under pressure if the creditworthiness of any of the financial counterparties (currency and interest-rate swap providers), ADWEC, or Siemens, were to materially deteriorate.”