TRIS Rating Co., Ltd. has affirmed the company and issue ratings of Glow Energy PLC (GLOW) at “A” with “stable” outlook. The ratings reflect GLOW’s proven track record in the power generating industry in Thailand, reliable cash flow from long-term Power Purchase Agreements (PPA) with the Electricity Generating Authority of Thailand (EGAT), and long-term contracts with a diverse group of industrial customers. These strengths are partially offset by customer concentration risk as most of GLOW’s customers are in the petrochemical industry in the Map Ta Phut area. The overwhelming environmental concerns in Map Ta Phut may obstruct electricity demand growth in the area and consequently limit the growth potential of the company.
The “stable” outlook reflects the expectation that GLOW will receive reliable cash flows from its long-term power sales contracts with EGAT and its industrial customers. The commissioning of its power projects under development will gradually increase the cash flow stream in the coming years.
TRIS Rating reported that GLOW was established in 1993 as a Small Power Producer (SPP) in the Map Ta Phut Industrial Estate. Its business scope has expanded into the cogeneration and independent power producer (IPP) both in Thailand and neighboring countries. GDF SUEZ Group remains the major shareholder of GLOW. GDF SUEZ is one of the world’s leading energy providers, supplying energy throughout the world, but primarily in Europe. GDF SUEZ also operates gas transmission and distribution networks and other energy services. Currently, GLOW is the leading private power producer in Thailand. The cogeneration business generated about 70% of GLOW’s sales and earnings before interest, tax, depreciation and amortization (EBITDA) in 2010. As of March 2011, its power generating capacity totaled 1,945 megawatts (MW), consisting of 865 MW in IPP plant and 1,080 MW in cogeneration units. One of GLOW’s IPP gas fired plants is located in Chonburi province while its hydro power plant is located in Lao PDR. GLOW’s cogeneration business, which is located in Map Ta Phut Industrial Estate and Eastern Seaboard Industrial Estate in Rayong province, mainly caters to petrochemical plants which require highly stable supplies of utilities. However, this structure carries concentration risk because most of the customers are in the petrochemical industry and located in the Map Ta Phut area.
Out of GLOW’s total capacity of 1,945 MW of electricity and 1,046 tonnes per hour of steam, 1,429 MW has been contracted to EGAT under several PPAs spanning 21 to 25 years. The remaining capacity of electricity and steam, together with treated water, are supplied to industrial customers under sales contracts. The contracts have remaining terms of up to 20 years. These long-term commitments provide GLOW with reliable sources of cash flow. In 2010, sales to EGAT contributed about 57% of total revenue while sales to industrial customers accounted for the remainder.
TRIS Rating said, electricity demand from GLOW’s industrial customers showed strong growth in 2010. The amount of electricity sold to this group of customer grew 14.5% year-on-year to 3,897 gigawatt hours (GWh) in 2010. However, the delay in the commissioning of the CFB#3 project limited the amount of available power generating capacity. Total power and stream sold increased modestly in 2010 rising 4.1% by volume and recorded a 3.3% growth in total revenue to Bt35,657 million. GLOW’s operating margin before depreciation and amortization improved significantly to 25.0% in 2010 from 22.1% in 2009 because of lower fuel prices. EBITDA for 2010 was Bt9,084 million, up by 16% from Bt7,830 million in 2009. In the first quarter of 2011, GLOW’s EBITDA declined by 4% compared with the same period of last year to Bt2,279 million. Revenue of the IPP business shrank by 9% over the same period of the previous year due to a strong baht as well as a drought which cut the revenue from the Houay Ho hydro power plant (HHPC). A decrease in fuel transfer (Ft) charge by Bt0.056 per kilowatt hours (KWh) during January till April 2011 also lowered EBITDA. GLOW’s total debt to capitalization ratio increased to 62.1% at the end of the first quarter of 2011 from 59.8% in 2009, due to higher borrowing to fund its expansion projects. Looking forward, EBITDA is expected to increase in 2011 from capacity expansion and the increase of Ft charge by Bt0.089 per KWh, effective in May to August 2011, despite a drought condition at HHPC and rising fuel cost.
GLOW’s CFB#3 (115 MW equivalent -- MWe) was commissioned in November 2010, 11 months behind the original schedule. The revenue shortfall due to the delay of the project was partly alleviated by a Delay Liquidated Damage charge paid by the engineering procurement and construction (EPC)
contractor according to the EPC contract made with GLOW. Two new expansion projects, Phase 5 (382 MWe) and a new IPP, GHECO-One (660 MW) are under construction. The two projects are nearly completed with Bt9,800 million yet to spend in 2011. The Phase 5 project is expected to be commercially operational by September 2011. The IPP project is expected to commence operation by January 2012, a few months behind the previous schedule. Taken together, the expansion projects will raise GLOW’s electricity generating capacity by 1,042 MWe. The total capacity across the GLOW Group will then rise by 47% to 3,275 MWe by 2012.
GDF SUEZ and International Power PLC (IPR), the major shareholders, have a plan to consolidate power operations in Thailand after IPR was merged with GDF SUEZ in the beginning of 2011. IPR currently has a wholly-owned subsidiary, namely Thai National Power Co., Ltd. (TNP), in Thailand. TNP and its subsidiaries operate gas-fired power plants totaling 143 MW under the SPP scheme. The plants are located in Pluak Daeng district in Rayong province. TNP is developing new cogeneration power plants, totally 110 MW, under the SPP scheme worth Bt4,500 million. If GLOW decides to combine with TNP, the financial strength of GLOW in the medium term is expected to weaken but remain manageable, supported by the reliable cash flow of TNP under its PPA and the gradual commissioning of GLOW’s expansion projects. However, increasing environmental concerns in the Map Ta Phut area may hinder GLOW’s sales growth in the long term. GLOW has policy to expand power generating capacity only in the Map Ta Phut area, where it has a strong competitive advantage. Currently, power capacity of 70 MW out of 1,042 MWe under development remained unsold. The environmental concerns in this area will also impede the expansion of other businesses and consequently constrain the growth in electricity demand in the area, said TRIS Rating. -- End
Company Rating: Affirmed at A Issue Ratings: GLOW12DA: Bt3,000 million guaranteed debentures due 2012 Affirmed at A GLOW156A: Bt1,500 million guaranteed debentures due 2015 Affirmed at A GLOW173A: Bt1,000 million guaranteed debentures due 2017 Affirmed at A GLOW175A: Bt2,000 million guaranteed debentures due 2017 Affirmed at A GLOW17OA: Bt1,600 million guaranteed debentures due 2017 Affirmed at A GLOW186A: Bt2,500 million guaranteed debentures due 2018 Affirmed at A GLOW194A: Bt2,000 million guaranteed debentures due 2019 Affirmed at A GLOW19OA: Bt1,400 million guaranteed debentures due 2019 Affirmed at A Rating Outlook: Stable TRIS Rating Co., Ltd./www.trisrating.com Contact: rapee@tris.co.th, Tel: 0-2231-3011 ext 500/Silom Complex Building, 24th Floor, 191 Silom Road, Bangkok 10500, Thailand Copyright 2011, 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.