Bangkok--22 Jun--Fitch Ratings
Fitch Ratings (Thailand) has placed Global Power Synergy Public Company Limited's (GPSC) National Long-Term Rating and senior unsecured rating of 'A+(tha)' on Rating Watch Negative (RWN).
This follows the 20 June 2018 announcement that GPSC will acquire 69.11% of the total issued shares of GLOW Energy Public Company Limited and will submit a tender offer for the remaining shares for a total investment value of THB141.2 billion. The acquisition will be initially funded by THB142.5 billion in bridging facilities, which will mature in one year from deal completion.
The acquisition and bridge loan refinancing are subject to various approvals, including by GPSC's shareholders and relevant regulatory authorities.
KEY RATING DRIVERS
Deal to Weaken Credit Metrics: The RWN is based on Fitch's expectation that GPSC's financial profile will deteriorate, as leverage could worsen to levels that are not in line with its 'A+(tha)' ratings. Fitch will resolve the RWN once the transaction completes and there is greater clarity on the long-term funding and post-transaction capital structure. The acquisition is likely to be completed within the next six months, but it may take longer for GPSC to refinance its bridge facility.
The company also plans to complete various transactions, including the issuance of a debenture and an equity injection, which will affect its long-term capital structure. This means a resolution of the RWN could take longer than the typical six-month period.
Reassessment of Credit Profile: Fitch will review any improvement in GPSC's business profile from its enhanced operating scale upon the resolution of the RWN. Fitch will only give credit for a clear and committed path towards non-debt-funded cash flow when assessing the company's share of equity funding when considering its post-transaction financial risk profile. In addition, Fitch will reassess linkages between GPSC and its parent, PTT Public Company Limited (AAA(tha)/Stable) - Thailand's largest oil and gas company - including any extraordinary support and operational and strategic linkages with PTT group.
More Asset Diversification: Fitch believes the acquisition will improve GPSC's business profile due to an increased size as well as better asset and geographical diversification. Its electricity and steam generation capacity will increase to 4,425MW and 2,718 tonnes per hour (tph), from 1,530MW and 1,512tph, respectively, as of end-2017. GPSC's share of Thailand's power generation would increase to around 10%, from 4%, to become the country's second-largest private power producer, from sixth place currently. In addition, GPSC is developing 410MW of electricity and 73tph of steam capacity that will start operations within the next four years.
Strong Asset Quality Retained: Fitch expects GPSC's overall asset quality to remain strong post-acquisition, as most of GLOW's generating assets are part of Thailand's regulated electricity business. The majority of GLOW's revenue is derived from contracted power and steam sales to customers with strong credit profiles, including Electricity Generating Authority of Thailand and affiliates of PTT. These contracts protect the company against volume risk, as customers are required to off-take at least the minimum contract capacity.
DERIVATION SUMMARY
GPSC's business profile is strong relative to Thai national peers when excluding the planned GLOW acquisition. Its earnings and operating cash flow profile are close to that of Bangkok Aviation Fuel Services Public Company Limited (BAFS; A+(tha)/Negative), which operates aircraft fuelling services at Thailand's major airports. These companies have highly predictable and stable earnings due to low competition, as well as the nature of contracts in the case of GPSC. GPSC's leverage profile is better than that of BAFS; however, BAFS' ratings incorporate our view that its financial profile will improve over time as it completes its large investment.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Our Rating Case for the Issuer
- THB141.2 billion for the acquisition of GLOW, assuming full subscription of tender offering
- GLOW revenue of THB48 billion-49 billion a year in 2018 and 2019 (2017: THB51 billion)
- GLOW EBITDA of THB15 billion-16 billion a year in 2018 and 2019 (2017: THB17 billion)
- Proportionate consolidation of earnings, cash flow, cash and debt from IRPC Clean Power Company Limited (IRPC-CP), a 240MW small power producer project in which GPSC has a 51% stake
- A waste-to-energy project and the expansion of the company's Central Utilities Plant to start operations in 2018 and 2019, respectively
- Dividends from GPSC' associates and joint ventures of around THB500 million-600 million a year during 2018-2019 (2017: THB565 million)
- Capex of THB5.3 billion in 2018 and THB1.4 billion in 2019; and a committed equity injection in associates and joint ventures of THB1.2 billion in 2018 and THB870 million in 2019
- 50% dividend payout ratio
RATING SENSITIVITIES
Developments that May, Individually or Collectively, Lead to Positive Rating Action
- Factors that could lead to Fitch removing the RWN and assigning a Stable Outlook include the completion of the transaction and greater clarity on the long-term funding and post-transaction capital structure, which will enable GPSC to maintain its FFO adjusted net leverage commensurate with its current rating.
Developments that May, Individually or Collectively, Lead to Negative Rating Action
- Post-transaction capital structure that results in FFO adjusted net leverage increasing significantly for a sustained period.
- Significant weakening in GPSC's financial profile relative to its business risk profile post-acquisition.
- The senior unsecured rating could be notched down from GPSC's National Long-Term Rating if secured debt/EBITDA increases to above 2.0x for a sustained period.
LIQUIDITY
Strong Liquidity: GPSC had THB4.0 billion of cash as of end-2017, sufficient to cover its THB990 million of debt maturing over the next 12 months. Its liquidity needs for new projects should be supported by strong cash flow from operation and available uncommitted credit facilities of THB6.5 billion. The planned GLOW acquisition will be initially funded by THB142.5 billion in bridging facilities.