TRIS Rating Co., Ltd. has assigned the rating of “AA-’’ to the proposed issue of up to Bt15,000 million in senior debentures of Banpu PLC (BANPU). At the same time, TRIS Rating has affirmed the company and current issue ratings of BANPU at “AA-”. The outlook remains “stable”. The proceeds from the new debentures will be mainly used to refinance existing loan. 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. Rising production cost and regulatory risk in Indonesia and China, including the mining license renewal, remain rating concerns.
The “stable” outlook reflects the expectation that BANPU will adopt a prudent financial policy when pursuing its growth strategy. Rising operating costs and the challenge to maintain a satisfactory level of reserve will be partly mitigated by favourably high coal prices and predictable dividends from the power business.
TRIS Rating reported that BANPU is one of the major energy companies in Asia. It was established in 1983 to mine coal in Thailand. The company has continuously expanded and now has coal operations in Indonesia, China, and Australia. The firm simultaneously increased its investments in the power business in both Thailand and China. Due to favorable coal price and increasing coal production, contribution from coal business rose to 82% of total earnings before interest, tax, depreciation and amortization (EBITDA) in 2010 from 78% in 2008. The remaining contribution from the power business declined to 18% in 2010. In terms of geographic diversification, 66% of EBITDA in 2010 was from the Indonesian operation, 17% was from China and remaining 16% was from Thailand. BANPU’s level of geographic diversification will be further enhanced by the contribution from coal business in Australia through the consolidation of Centennial Coal Co., Ltd. (CEY) in 2011. Excluding China, coal production of BANPU in 2010 totaled 22 million tonnes, mainly from Indonesian mines. Based on rising coal price, the company’s coal reserves in Indonesia increased to 329 million tonnes at the end of December 2010. However, rising coal production kept reserves life equivalent to 13 years of production.
BANPU’s net profit during 2010 was exceptionally high at Bt24,728 million, mainly supported by the divestment gain of PT Indo Tambangraya Megah TBK (ITM) and Ratchaburi Electricity Generating Holding PLC (RATCH). Excluding the divestment gain of Bt15,777 million, BANPU’s net profit was Bt8,951 million, down by 37% over the same period of last year. Operating margin before depreciation and amortization fell to 17.4% in 2010 from 31.4% in 2009. Rising diesel price, no hedging gain, higher production cost, and the writing off of the underground feasibility study for the Indominco mine attributed to the decline. The temporary halt of production in Jorong also depressed operating margin in 2010. EBITDA were lower by 26% over the same period of last year to Bt19,498 million in 2010. Looking forward, currently high coal price and CEY’s full year consolidation will help enhance BANPU’s performance. At the end of February 2011, only 40% of total forecasted coal sales in 2011 have been made at fixed price with the remaining 60% of total volume to be sold remains float. Rising demand from India and China is expected to keep coal prices high and thus benefit BANPU.
Coal operation in China slowed down in 2010, contributing equity income of only Bt3,212 million in 2010, down by 20% from 2009 despite favorable coal price in China. The mining license of Daning mine, in which BANPU holds a 56% stake, was not renewed on time. It has submitted for renewal since June 2010, but Chinese local authority granted temporary license spanning August to December 2010. Currently, local authority did not issue the permit yet and Daning mine, which normally produced 4 million tonnes of coal per year has halted production since January 2011. However, the commencement of coal production at Gaohe, China will partly alleviate the impact from the production halt at Daning. CEY’s operating performance was in line with expectation with 3.6 million tonnes of coal production in the fourth quarter of 2010. After full acquisition in October 2010, CEY contributed Bt6,500 million in revenue to BANPU during the fourth quarter of 2010. CEY’s gross margin of 32% and operating margin of 10% were slightly better than the margins recorded in the 2010 fiscal year ending in June.
As of December 2010, BANPU’s total debt jumped to Bt90,628 million. Its net debt to capitalization ratio of 51.4% was slightly higher than its policy of 50%. Looking forward, BANPU’s capital expenditure for its existing operation is moderate with an annual budget of US$100-150 million per year during 2011-2013 and equity injection for the Hongsa project of US$255 million in 2014-2015. Its annual debt service is scheduled to be managed approximately at Bt10,000 million. These capital needs will be sufficiently funded by its EBITDA of approximately Bt25,000 million per year. The net debt to capitalization ratio is then expected to improve from 51.4% as of December 2010.
Company Rating: Affirmed at AA- Issue Ratings: 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- Up to Bt15,000 million senior debentures due within 2026 AA- Rating Outlook: Stable
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