Moody’s issues Baa3 rating for ACWA Power’s planned bond; outlook stable

Moody’s Investors Service has assigned a provisional long-term rating of Baa3 with a stable outlook to Saudi-based ACWA Power’s planned $1 billion bond issuance, the rating agency said on Monday. 

ACWA Power plans to issue fully amortizing senior secured bonds and sukuk maturing in 2039, net proceeds of which will be invested in ACWA Power group companies.

Payment on the bonds and periodic distributions on the sukuk will depend on dividends and certain fees being paid by nine power and water project special purpose vehicles (SPVs) in the kingdom, as well as associated SPVs providing operation and maintenance (O&M) services to those projects.

The (P) Baa3 ratings on the bonds and sukuk reflect as positives: a stable revenue stream driven by long-term offtake contracts with a government-owned entity; the majority of projects having achieved construction completion some time ago; and the existence of several projects, which somewhat reduces financial volatility.

However, the ratings are constrained by the structural subordination of the bonds and sukuk relative to existing project financing, among other factors, the report said. 

Ratings could be upgraded following a period of sustained and consistent operating performance of the underlying projects and O&M companies.

“However, we think this is unlikely due to the contractual structure of the underlying projects which limits the scope of improved financial performance,” Moody’s said.

On the other hand, a downgrade could be issued following significant financial underperformance of the SPVs, and/or a serious and prolonged technical issue at a project, which would threaten cash flows or substantially increase costs.

Last week, Reuters reported that ACWA Power is expected to offer a sizeable spread on its bond issuance, due to market volatility following the U.S. elections and a narrowing issue window.

The bond – which would be the first international bond offering from Saudi Arabia since the kingdom’s $17.5 billion debt sale in October – might price around 330 basis points over mid-swaps, the agency reported citing fund managers.