TRIS Rating Affirms Company and Issue Ratings of “BANPU” at “AA-” with “Stable” Outlook

TRIS Rating Co., Ltd. has affirmed the company and issue ratings of BANPU PLC (BANPU) at “AA-” with “stable” outlook. The ratings continue to reflect the company’s leading position in the regional coal market, diversified coal reserves and customer base, as well as a reliable stream of dividend income from its power business. The ratings also take into consideration its strategic expansion into the coal business in Australia.

The “stable” outlook reflects the expectation that BANPU will continue to adopt a conservative financial policy when pursuing its growth strategy. A reliable stream of dividends from the power business will provide some cushion for the company. The favorable coal prices spurred by the global economic recovery will support BANPU’s performance in the medium term.

TRIS Rating reported that the rating confirmation is to remove the CreditAlert with “developing” implications placed on the company and issue ratings of BANPU since 6 July 2010, following the company’s announcement to purchase 100% of the equity of Centennial Coal Co., Ltd. (CEY) in Australia. The tender offer closed on 12 October 2010 and the payment was made on 21 October 2010. The consideration for the acquisition was A$2,383 million to purchase 100% of CEY. Three-fourths of the acquisition cost was funded by bank loans while the remaining 25% came from internal cash flow.

After the acquisition, the consolidated debt of BANPU rose substantially to approximately Bt95,000 million by the end of October 2010, from the pre-acquisition level of Bt31,071 million as of March 2010. However, BANPU re-balances its portfolio to manage its capital structure. In September 2010, it divested a 8.72% stake in a listed subsidiary, PT Indo Tambangraya Megah TBK (ITM) in Indonesia, for Bt11,924 million with majority stake of 65% left in ITM. In November 2010, BANPU further divested a 15% holding in Ratchaburi Electricity Generating Holding PLC (RATCH) and received more than Bt7,000 million in cash. Cash receipts from divestments were used to repay bank loans. Its net debt to capitalization ratio is expected to improve from approximately 50% as of December 2010 after the contribution from CEY has been fully realized.

TRIS Rating said, the move to Australia is in line with BANPU’s mission to become a leading energy company in Asia and diversify its coal mining resources, adding the business in Australia to its existing mines in Indonesia and China. The diversification in coal reserves and operations to one of the largest coal-exporting country, Australia, will improve its business profile and mitigate in part its higher leverage caused by this acquisition. However, although BANPU has extensive experience and successful track records in overseas coal operations in Indonesia and China, integration of CEY into BANPU remains a challenge. The key risk factors of the Australian investment include regulatory risks from upcoming changes in the coal business in Australia and the execution risk of managing coal business in a new country.

CEY currently operates 10 coal mines in New South Wales, Australia, supplying thermal coal to domestic and export markets. Coal production according to ownership of CEY, or equity production, was approximately 14-15 million tonnes per annum during the past three years, equivalent to 60% of current BANPU’s coal production in Indonesia. According to CEY, equity reserves were quite abundant at 343 million tonnes as of June 2010. The reserves consist of 90 million tonnes in proved reserves and 253 million tonnes in probable reserves. As of June 2010, CEY had total assets of A$1,412 million and bank borrowings of A$355 million. Total equity stood at A$749 million. For the fiscal year 2010 ended June, CEY reported total revenue of A$800 million and earnings before interest, tax, depreciation and amortization (EBITDA) of A$168 million, which equaled 40% of BANPU’s revenue in 2010 and 20% of EBITDA.

BANPU’s net profit during the first nine months of 2010 was high at Bt19,805 million, mainly supported by the extra gain from the partial divestment of ITM. Excluding the divestment gain of Bt11,692 million, BANPU’s net profit was Bt8,113 million, down by 36% over the same period of last year. No hedging gain, rising production cost, and the writing off of the underground feasibility study for the Indominco mine attributed to the decline. The lower contracted coal price also pushed down the operating performance. As parts of the contracts were done during the low price period, the selling price of the first nine months has not yet been fully factored in the recent coal price increase. Earnings before interest, tax, depreciation and amortization (EBITDA) fell 15% over the same period of last year to Bt16,931 million in the first three quarters of 2010. Looking forward, currently high coal price and CEY’s contribution will help enhance BANPU’s performance, said TRIS Rating. -- End

Company Rating: Affirmed at AA- Issue Ratings: BP111A: Bt1,500 million senior debentures due 2011 Affirmed at AA- BP125A: Bt2,000 million senior debentures due 2012 Affirmed at AA- BP145A: Bt2,200 million senior debentures due 2014 Affirmed at AA- BP15NA: Bt2,500 million senior debentures due 2015 Affirmed at AA- BP165A: Bt2,100 million senior debentures due 2016 Affirmed at AA- Rating Outlook: Stable Copyright 2010, TRIS Rating Co., Ltd. All rights reserved. Any unauthorized use, disclosure, copying, republication, further transmission, dissemination, redistribution or storing for subsequent use for any purpose, in whole or in part, in any form or manner or by any means whatsoever, by any person, of the credit rating reports or information is prohibited. The credit rating is not a statement of fact or a recommendation to buy, sell or hold any debt instruments. It is an expression of opinion regarding credit risks for that instrument or particular company. The opinion expressed in the credit rating does not represent investment or other advice and should therefore not be construed as such. Any rating and information contained in any report written or published by TRIS Rating has been prepared without taking into account any recipient’s particular financial needs, circumstances, knowledge and objectives. Therefore, a recipient should assess the appropriateness of such information before making an investment decision based on this information. Information used for the rating has been obtained by TRIS Rating from the company and other sources believed to be reliable. Therefore, TRIS Rating does not guarantee the accuracy, adequacy, or completeness of any such information and will accept no liability for any loss or damage arising from any inaccuracy, inadequacy or incompleteness. Also, TRIS Rating is not responsible for any errors or omissions, the result obtained from, or any actions taken in reliance upon such information. All methodologies used can be found at http://www.trisrating.com/en/rating_information/rating_criteria.html.