Bangkok--24 Jan--Fitch Ratings
Fitch Ratings says Global Power Synergy Public Company Limited's (GPSC, A+(tha)/Rating Watch Negative) plan to invest in the Energy Recovery Unit Project (ERU) - a 250 MW thermal power plant that is part of Thai Oil Public Company Limited's (TOP, AA-(tha)/Stable) Clean Fuel Project (CFP) - will not have an immediate impact on GPSC's rating. The rating remains on Rating Watch Negative (RWN), mainly driven by the pending acquisition of GLOW Energy Public Company Limited (GLOW).
Fitch believes that the new investment may put additional pressure on GPSC's financial profile as it plans to finance the investment via debt. However, the project will buoy GPSC's business profile and improve operational ties between the company and PTT group. Both GPSC and TOP are majority owned by PTT Public Company Limited (AAA(tha)/Stable).
GPSC's 'A+(tha)' National Long-Term rating will remain on RWN until the acquisition of GLOW is completed and there is a greater clarity on the long-term funding and post-transaction capital structure. GPSC's ratings were placed on RWN on 22 June 2018 following the company's announcement that it will acquire 69.11% of GLOW and make a tender offer for the remaining shares.
Fitch expects GPSC to finance its total investment of up to USD757 million in the ERU with additional debt. This, in our view, may slow down the pace of deleveraging after the GLOW acquisition compared with our previous expectations. Our forecast for GPSC's leverage is unlikely to change significantly from our previous expectation until 2023 when the largest payment for the ERU occurs. We expect the investment in the new project to raise the post-acquisition FFO adjusted net leverage for 2023 to 4.4x, from our previous expectation of 3.2x. Leverage will gradually drop afterwards as the new project starts to generate cash flow.
Fitch believes the investment in the ERU will improve GPSC's business profile as it will increase its size and diversify its assets. GPSC should benefit from the high-quality cash flow from the project as all revenue is derived from contracted power and steam sales to the sole off taker, TOP. The contracts protect the company against volume and fuel supply risk, as the project receives capacity payment based on its ability to maintain the power plant's availability to TOP, regardless of the amount of energy generation. Fuel and variable costs are fully passed through to TOP. The construction of the ERU is likely to be completed in 3Q23. Once it commences the operation, the project is likely to add around THB2.2 billion of EBITDA per annum, accounting for around 11% of total GPSC's post-acquisition EBITDA.
To resolve the RWN on GPSC's ratings, Fitch will review the financial impact on the company from the acquisition of GLOW and the investment in the ERU, as well as assess the improvement in GPSC's business profile in terms of size and scale stemming from these transactions. In addition, Fitch will reassess linkages between GPSC and its parent, PTT- Thailand's largest oil and gas company - including any extraordinary support and operational and strategic linkages with PTT group.