Standard & Poor’s Ratings Services assigned its ‘A-‘ long-term rating to the $825 million bonds maturing in 2036 issued by Ruwais Power Co. PJSC (Shuweihat 2), a project company that manages the development, ownership, insurance, operation, and maintenance of the S2 power generation and seawater desalination plant in Abu Dhabi.
The S2 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) under its privatization program. ADWEA is a wholly owned subsidiary of the government of Abu Dhabi that is implementing the government’s ADWEA Privatization Program, which includes power and/or water projects in the Emirate of Abu Dhabi and the Emirate of Fujairah.
The proceeds from the 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 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 implemented, or currently being implemented, by the government of Abu Dhabi through 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/or water projects.
The ‘A-‘ long-term rating on S2’s $825 million 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 government of Abu Dhabi would provide timely and sufficient extraordinary support to S2 in the event of financial distress.
“In our view, the project’s liquidity is adequate for this kind of transaction.”
The stable outlook reflects our expectation that S2’s operations will continue in line with our base case, with average and minimum DSCRs of 1.20x and 1.18x, respectively, calculated under our criteria. In addition, we anticipate that the project will continue to have a “moderately high” likelihood of support from the government at least over the medium term. The stable outlook also reflects that on the Emirate of Abu Dhabi. In accordance with our criteria for GREs, any change to the ratings on Abu Dhabi would likely result in a similar rating action on S2.
“We could lower the rating on S2 in the event of significant cost increases or forced outage events, which in turn led to lower average and minimum DSCRs than we currently anticipate. The rating 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.”