Bangkok--19 Apr--Fitch Ratings
Fitch Ratings (Thailand) Limited has assigned Ratchaburi Power Company Limited's (RPCL) upcoming senior secured debentures of up to THB5.1bn an expected 'AA-(tha)(exp)' rating. The Outlook is Stable. The proceeds of the debentures will be used to refinance the company's existing Thai baht loans. The final rating is contingent on the receipt of final documents conforming to information already received.
The ratings are based on RPCL's strong business profile, reflecting a favourable long-term take-or-pay power purchasing agreement (PPA) with off-taker, Electricity Generating Authority of Thailand (EGAT), the government-owned utility, which underpins stable and recurring revenue and cash flow. RPCL's strong business profile is also underpinned by the stable regulatory environment of Thailand's electricity supply industry.
Demand volatility and fuel price risks are fully hedged by the off-take and cost pass-through mechanisms in place. The availability payment structure under the PPA isolates RPCL from demand risk, while cost pass-through tariff adjustment mitigates the risk from cost increases due to foreign exchange and inflation. Fuel cost is fully passed on to EGAT via energy payment under the PPA.
RPCL's operating risk is mitigated by the use of commercially proven turbine and generator technology and efficient operating and maintenance practices. Its long-term gas supply agreement with PTT Public Company Limited, the national oil and gas company, also ensures a stable and reliable supply of primary fuel for the power plant.
Nonetheless, RPCL's business profile is constrained by the single-asset nature of the power plant with no earning diversification as well as by its short operating track record relative to peers. Earnings and cash flow of RPCL could be impacted by an unexpected outage and/or efficiency shortfall. However, its long-term operation and maintenance agreement with Chubu Ratchaburi Electric Service Company Limited which in turn subcontracted its day-to-day operation and maintenance activities to the experienced power plant operator EGAT should help mitigate operational risk to some extent.
Projected debt service coverage ratio (DSCR) is strong with an average of around 1.8x and should not drop below 1.5x. The plant's long remaining operating life until the PPA expiry in 2033 as compared with the current debt maturity to 2020 also provides buffer against downside risks. Strict credit protection measures under the current loan agreements further underpin the company's prudential financial management. Fitch expects RPCL's financial leverage will continue to improve to below 1.7x by end-2013 from 2.4x at end-2010, as it continues to pay down its debt.
The Stable Outlook reflects Fitch's expectation that RPCL will continue to generate solid earnings as well as maintain its DSCR consistent with its current credit metrics. The ratings may be negatively impacted by weak performance of the power plant leading to deterioration in DSCR and slower-than-expected de-leveraging. Conversely, the ratings may be positively impacted by stronger-than-expected cash flow generation leading to significantly higher-than-expected DSCR.
Established in 1997, RPCL operates a 1,400MW gas-fired combined cycle power plant in Ratchaburi province in the western part of Thailand. All its energy produced is sold to EGAT under a 25-year long-term PPA through to 2033.