TRIS Rating Affirms Rating of “KEGCO’s” Senior Secured Debentures at “AA-/Stable”

TRIS Rating Co., Ltd. has affirmed the rating of the senior secured debentures of Khanom Electricity Generating Co., Ltd. (KEGCO) at “AA-” with “stable” outlook. The rating reflects solid project fundamentals of KEGCO’s Khanom power plant, strategic position as a major base load generator in Thailand’s southern region, and proven operational track record.

The “stable” outlook reflects TRIS Rating’s expectation that the Khanom power plant will continue to achieve its performance targets and will generate a reliable revenue stream to KEGCO through the lives of power purchase agreements (PPA).

TRIS Rating reported that KEGCO was established in 1995 to buy the 824-megawatt (MW) Khanom power plant from the Electricity Generating Authority of Thailand (EGAT) under EGAT’s privatization plan. KEGCO is a wholly-owned subsidiary of the Electricity Generating PLC (EGCO), which is 25.4% owned by EGAT. The power station is located in Nakorn Sri Thammarat province in southern Thailand. It consists of two barge-mounted thermal plants (150 MW) and a combined cycle gas turbine plant (674 MW).

TRIS Rating said the 15- to 20-year PPAs between EGAT and KEGCO are well- structured. The pay-if-available payment commitment mitigates KEGCO’s demand risk while the cost-plus basis of the tariff structure reduces KEGCO’s price risk. KEGCO’s competitive advantage stems from its position as a major base load generator in the southern part of Thailand. KEGCO supplied approximately 46% of total electricity demand in the southern region during 2006-2009. The availability and plant heat rates since the start of operation have met the performance targets specified in the PPA. The combination of proven technology and experienced staff reduces technology and operating risks. A pass-through component in the energy payment structure limits KEGCO’s exposure to fuel price risk.

KEGCO’s operating performance during the first nine months of 2010 was satisfactory. The company was able to maintain the power plant availability factor as high as 85.4%. Electricity sales dropped from Bt3,211 million in 2008 to Bt2,318 million in 2009 and to Bt2,253 million for the first nine months of 2010 in accordance with the PPA structure. The company’s total debt fell to Bt979 million as of September 2010 and its total debt to capitalization ratio continuously improved from 20.8% at the end of 2009 to 14.8% as of September 2010. KEGCO’s debt service coverage ratio, as adjusted to include the reserve account and working capital investment, was 3.13 times as of September 2010.

KEGCO’s debentures will mature in June 2011, the same time with the expiration of the PPA of the Thermal Unit 1. As of September 2010, the outstanding debentures amount was Bt979 million. The company had cash on hand and short-term investment of Bt607 million, which was sufficient to make a payment of Bt476 million in December 2010. The remainder of the debentures (Bt503 million) will be serviced by the reserved account, which will be fulfilled by March 2011, said TRIS Rating. -- End

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