Fitch Ratings has affirmed Thailand-based Global Power Synergy Public Company Limited's (GPSC) Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'BBB-' and National Long-Term Rating at 'A+(tha)'. The Outlook is Stable. The agency has also affirmed the 'A+(tha)' rating on GPSC's senior unsecured ratings.
The affirmation reflects GPSC's strong business profile as a leading private-power producer, accounting for 10% of Thailand's power generation, supported by overseas diversification. Its power-generation assets have predictable cash flow from long-term contracted sales with strong counterparties. Fitch expects the weakness in 2022 earnings, caused by fuel-cost volatility and delayed tariff adjustment in the small power producer (SPP) business, to be temporary and recover in 2023 and its leverage profile to be in line with its rating level.
GSPC's rating incorporates a two-notch uplift from its 'bb'/'a-(tha)' Standalone Credit Profile (SCP). We assess that its parent, PTT Public Company Limited (BBB+/AAA(tha)/Stable) has 'Medium' strategic and operational incentives to support GPSC, given its role in the parent's energy transition strategy.
KEY RATING DRIVERS
Revenue Visibility: GPSC has strong revenue visibility, as most of its assets are part of Thailand's regulated electricity business; 43% of GPSC's revenue in 2021 is contracted under long-term take-or-pay power purchase agreements with state-owned Electricity Generating Authority of Thailand (EGAT, BBB+/Stable) and a further 31% comes from PTT group. This supports stable demand, even during the Covid-19 pandemic, while GPSC's diversified asset base enables it to manage disruptions at any single power plant. The majority of GPSC's overseas investments, accounted for as associates, also benefit from long-term contracted sales.
Rising Gas Prices Pressure 2022 Margin: Fitch expects 2022 EBITDA to drop to THB10 billion (2021: THB17 billion) on account of high fuel costs, with natural gas prices exceeding THB450/million British thermal units in 3Q22, from the average of around THB260 in 2021. EBITDA was also dampened by inadequate tariff revision in GPSC's SPP business. Tariff increases by the regulator during 2022 were insufficient to cover the higher fuel costs. That said, the regulator indicated its intention in a recent public hearing for tariffs in early 2023, to raise the tariff to around THB5-6/kilowatt hour (kWh), from THB4.7/kWh currently. This should support margin recovery in 2023.
We forecast annual EBITDA of around THB17 billion-19 billion from 2023, based on a moderation in fuel costs in line with our gas price assumptions and lower domestic gas prices under new gas-production sharing contracts for certain fields.
Price Risk: GPSC's earnings from electricity sales to industrial users, including PTT's affiliates, are exposed to some price risk. An adjustment mechanism exists to take into account fuel price changes, but the regulator aims to maintain stable tariffs and there have been instances when higher fuel costs were not fully passed through in retail tariffs. Power utilities were allowed to recover dues over time as and when fuel costs started declining.
Leverage to Improve: Margin weakness is likely to see EBITDA net leverage, measured by net debt/EBITDA, reach 10x in 2022, up from 5.1x in 2021. However, leverage should fall below 6.2x in 2023, supported by a recovery in operating performance, although rating headroom will stay narrow though to 2025 given GPSC's large capex and investment plans.
Large Capex and Investment Plans: We expect capex to remain high given GPSC's ongoing integration of its subsidiary, Glow Energy Public Company Limited, the planned replacement of Glow's SPP natural gas plants and the planned acquisition of Thai Oil Public Company Limited's (A+(tha)/Negative) energy recovery unit project in 2025. We estimate investments of THB20 billion over the next four years. Nevertheless, additional cash flow from new plants should keep GPSC's leverage profile below our negative rating sensitivities.
Diversified Asset Portfolio: We expect GPSC to benefit from its enlarged scale and improving fuel-mix. Its total operating capacity is targeted to reach 7.2 gigawatts (GW) by 2025, from 6.3GW in 2022 and 4.7GW in 2020. The contribution to operating capacity from natural gas power plants has fallen to 53%, from 72% in 2020, while renewables account for 34% (2020: 11%), driven by recently acquired solar and offshore wind assets in India and Taiwan, respectively.
Nevertheless, benefits will be offset by higher counterparty risk at its Indian assets and cash flow subordination due to a minority shareholding in the overseas investments.
Moderate Linkage with Parent: We view GPSC as PTT's flagship company for its power business to support the group's energy transition in renewables growth and electric-vehicle value chain. GPSC's strategy is aligned with the group's plan to scale-up its renewable portfolio to 12GW by 2030, driving our 'Medium' strategic incentive assessment. Our parent and subsidiary linkage assessment reflect PTT's influence as a majority shareholder with a common management team, including a record of financial support. PTT provided shareholder loan to GPSC to fund its investments in India and Taiwan.
We assess GPSC's business profile to be stronger compared with PetroVietnam Power Corporation - Joint Stock Company (PV Power, BB/Positive), Vietnam's second-largest electricity producer, accounting for 11% of commercial electricity generation. PV Power's rating is in line with that of Vietnam Electricity (EVN, BB/Positive), its main off-taker. EVN's rating caps PV Power's 'bb' SCP. PV Power's financial profile is stronger than GPSC's, with EBITDA net leverage below 4.5x. However, GPSC benefits from greater revenue and cash flow predictability based on power purchase agreements with stronger counterparties. This results in the same overall SCP assessment for both companies.
We assess the SCP of NTPC Limited (BBB-/Stable), India's largest power-generation company, accounting for around 20% of electricity generation, at 'bbb-', at the same level as its IDR. NTPC's two-notch higher SCP assessment compared with GPSC reflects its stable operating profit due to an established regulatory return framework that allows for timely pass-through of cost changes, even though the financial profiles of the two entities are comparable.
GPSC's earnings and cash flow profiles are similar to those of Bangkok Aviation Fuel Services Public Company Limited (BAFS, BBB+(tha)/Negative), an aircraft fuelling service operator at Thailand's major airport, and Nava Nakorn Electricity Generating Company Limited (NNEG, A-(tha)/Stable), a small power producer in Thailand.
GPSC and NNEG have predictable and stable earnings due to low competition and the nature of contracts. GPSC has a stronger business profile than BAFS, as it has better asset diversification and higher revenue and earnings. In addition, BAFS has been affected by the downturn of aviation industry amid pandemic-related disruptions, resulting in weak earnings and high financial leverage. As a result, GPSC's SCP on the national scale is rated one notch above that of BAFS.
GPSC has higher financial leverage on a projected basis than NNEG, with EBITDA net leverage of over 5.2x over the medium-term due to high capex and investments. Hence, GPSC's SCP is the same as NNEG, despite GPSC's better business profile, with better asset diversification and higher operating cash flow.
- Consolidated sales of THB68 billion-118 billion in 2022-2025 (2021: THB72 billion)
- Consolidated EBITDA margin of about 9% in 2022, recovering to 16%-27% in 2023-2025 (2021: 24%)
- Total capex and investments of THB75 billion, mainly for offshore wind in Taiwan, SPP power plant replacement and the energy recovery unit project
- 40% dividend payout ratio
- Evidence of stronger ties with PTT
- An improvement in GPSC's SCP is unlikely in the medium term, considering our expectations of high financial leverage after recent acquisitions. We may consider a positive revision of the SCP if EBITDA net leverage falls to below 5.2x on a sustained basis
Factors that could, individually or collectively, lead to negative rating action/downgrade:
- Deleveraging that is slower than we expect due to higher investments or lower cash flow generation, resulting in EBITDA net leverage rising to above 6.2x for a sustained period.
- A weakening in the business profile due to aggressive investments in projects with higher operating risks
- Weakened ties with PTT
- GPSC's senior unsecured rating could be notched down if prior-ranking debt/EBITDA increases to above 2.5x for a sustained period (2021: 1.5x)
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579.
LIQUIDITY AND DEBT STRUCTURE
Manageable Liquidity: Liquidity is supported by cash and cash equivalents of THB16.1 billion at end-September 2022. Debt maturing over the next 12 months from September 2022 amounts to THB13.8 billion and mainly comprises of long-term debt repayments. In September 2022, the company obtained additional term loans and bonds totaling THB27.1 billion and had an available credit facility over THB15 billion to further support liquidity.
GPSC is a Thailand-based company involved in the sale of electricity, steam and industrial water to industrial customers, primarily PTT and its subsidiaries. The company also sells electricity to EGAT. GPSC's power assets are located in Thailand, India, Taiwan and Laos. As of 30 September 2022, the company's electricity and steam generating capacity, including committed projects, was 6,357 megawatts and 2,948 tonnes per hour, respectively.
SUMMARY OF FINANCIAL ADJUSTMENTS
Fitch adjusted GPSC's consolidated profile by proportionately consolidating IRPC Clean Power Company Limited based on GPSC's 51% stake in the power project. We do not believe GPSC has full access to the company's cash flow and has partial responsibility for its obligations based on the shareholding structure and funding arrangements.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
GPSC's rating incorporates a two-notch uplift from its SCP, reflecting our view that its parent (PTT) has medium operational and strategic incentives to support it.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
GPSC's rating incorporates a two-notch uplift from its SCP, reflecting our view that its parent has medium operational and strategic incentives to support it.
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
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