Bangkok--24 Jan--Fitch Ratings
Fitch Ratings (Thailand) Limited has affirmed the National Long-Term Rating on Global Power Synergy Public Company Limited (GPSC) at 'A+(tha)' with Stable Outlook. At the same time, the agency has affirmed GPSC's senior unsecured rating at 'A+(tha)'.
KEY RATING DRIVERS
Increasing Asset, Geographical Diversity: GPSC's ratings reflect its position as a medium-sized private electricity and steam generator in Thailand. Fitch expects GPSC business profile to gradually improve in the medium term due to more asset and geographical diversification. As of December 2017, GPSC owned generating capacity by equity of 1,530MW and 1,512 tonne per hour (tph) of steam generation. Its power generation accounted for around 4% of the country's installed capacity. GPSC is also developing 392MW of electricity and 70 tph of steam capacity that will become operational over the next four years.
Low Volume Risk, Strong Counterparties: Most of GPSC's revenue is derived from contracted power and steam sales to customers with strong credit profiles, including Electricity Generating Authority of Thailand (EGAT) and affiliates of PTT Public Company Limited (PTT; AAA(tha)/Stable), the country's largest oil and gas company. These contracts provide GPSC with protection against volume risk as customers are required to off-take at least 75% of contracted capacity.
Some Price Risk: GPSC's earnings from electricity sales to industrial users, including PTT's affiliates, are exposed to some price risk. Although there is an adjustment mechanism in place that takes into account changes to fuel prices, the tariff adjustment is largely based on the discretion of the regulator; there have been instances of slower-than-required tariff increases during periods of high fuel prices. In addition, the price of non-firm electricity volume sold to EGAT depends on the overall demand and supply condition of the electricity system.
Strong Earnings Growth: Fitch expects GPSC's EBITDAR to increase strongly to around THB4.0 billion in 2018 from an expected THB3.7 billion in 2017 (2016: THB3.4 billion) as new projects come online. Earnings growth is likely to be driven by a full-year of operation of the second phase of IRPC Clean Power (IRPC-CP Phase 2) and the commissioning of a waste-to-energy project (RDF plant) in 2018. The projects are likely to add around THB900 million of EBITDAR a year.
High Investments: Fitch expects GPSC's free cash flow to be negative in 2018 due to high investments in new projects. Operating cash flows will continue to grow, but will be insufficient to cover capex and dividend payments during this period. Fitch forecasts GPSC's FFO adjusted net leverage to increase to around 2.2x in 2018 from an expected 1.6x in 2017 (2016: 1.0x), before falling to below 2.0x in 2019 due to higher earnings from new projects; our assumptions include total capex and investments of THB8.8 billion in 2018 and 2019.
Operational Linkages with PTT: The ratings on GPSC incorporate the benefits of the company's linkages with the PTT group, specifically the strong counterparties and high volume certainty, which contribute to a very strong business profile. The majority of GPSC's revenue and earnings are generated from the PTT group. GPSC's contribution to the PTT group's earnings and overall business profile is, however, minimal over the foreseeable future. We may consider reassessing the strategic linkages with PTT if GPSC's contribution to PTT becomes significantly larger, which may lead to an uplift to GPSC's rating should we conclude that it may receive extraordinary support from the PTT group if needed.
DERIVATION SUMMARY
GPSC's business profile is strong relative to Thai national peers. Its earnings and operating cash flow profile are close to those of Bangkok Aviation Fuel Services Public Company Limited (BAFS; A+(tha)/Negative), which operates aircraft fuelling services at Thailand's major airports, and BTS Group Holdings Public Company Limited (BTS Group; A-(tha)/Negative), the operator of the skytrain network in Bangkok. These companies have highly predictable and stable earnings due to low competition or the nature of contracts in the case of GPSC. GPSC's leverage profile is better than that of BAFS, and much better than BTSG's; however, BTS Group's ratings incorporate our view that its financial profile will improve over time as the company completes its large investments.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Our Rating Case for the Issuer
- Proportionate consolidation of IRPC-CP's earnings, cash flow, cash and debt
- Waste-to-energy project (RDF plant) and the expansion phase of Rayong Central Utilities Plant to start their operations in 2018 and 2019, respectively
- Dividends received from associates and joint ventures (JVs) of around THB500 million-600 million a year during 2017-2019 (2016: THB700 million)
- Capex of THB5.3 billion in 2018 and THB1.4 billion in 2019; and committed equity injection in associates and JVs of THB1.2 billion in 2018 and THB870 million in 2019
- 50% dividend payout ratio
RATING SENSITIVITIES
Developments that May, Individually or Collectively, Lead to Positive Rating Action
- Positive rating action is unlikely in the medium term as we do not expect GPSC's business profile to improve significantly in the medium term.
Developments that May, Individually or Collectively, Lead to Negative Rating Action
- Weaker-than-expected earnings or higher-than-expected investments resulting in FFO adjusted net leverage increasing to more than 2.5x on a sustained basis.
- A weakening of the business risk profile due to aggressive investments in projects with higher operating risks.
- Senior unsecured rating could be notched down from the company's National Long-Term Rating if secured debt/EBITDA increases to above 2.0x (end-9M17: 1.8x) on a sustained basis.
LIQUIDITY
Strong Liquidity: GPSC's liquidity is strong. As of end-9M17, the company had THB4.5 billion of cash, which is enough to cover its THB287 million of debt maturing over the next 12 months. Its liquidity needs for new projects should be supported by the strong cash flow from operations and the available uncommitted credit facilities of THB6.5 billion.