TRIS Affirms the Rating of KEGCO’s Debts at "A-"
Thai Rating and Information Services (TRIS) announced on Friday 25 September 1998 that it affirms the rating of Khanom Electricity Generating Co., Ltd.’s (KEGCO) 7,500 million baht senior secured debentures at "A-". TRIS said that the rating is based on KEGCO’s solid project fundamentals, favourable power purchase contract, and professional management. These strengths are somewhat offset by project operating performance risks, the nature of project finance, and market risks associated with its overall borrowings. TRIS noted that the rating also reflects the reduced support of the Electricity Generating Authority of Thailand (EGAT) as a main shareholder of Electricity Generating PLC (EGCO), KEGCO's parent company. Since EGAT is KEGCO's sole power purchaser, the credit rating of EGAT provides a ceiling for the project's rating. The magnitude of the support of China Light & Power (CLP) as a new strategic investor in EGCO is difficult to determine at this time, TRIS said.
With 824 MW (installed) from two barge-mounted thermal power plants and a combined cycle power plant, KEGCO is the main base load generation source in the southern region. Efficient fuel utilization and its strategic location in a steady demand growth area lead to attractive project economics. Construction risk is minimal because the project is complete and the initial start-up is successful. Its improved design and operating method mitigate technology risk. The project’s strong management and proficient on-site staff minimize fundamental and operational risks. A well-arranged offtake contract structure provides a high degree of cash flow stability, a close match between revenues and expenses, and adequate bondholder protection. Cost arising from the variations in fuel price is passed on to its power purchaser, and a minimum take obligation protects KEGCO against downside risk caused by disproportionate unrecovered fuel costs from low dispatch levels. The sell-off of 14.92% of EGAT's stake in EGCO to CLP Power Projects (Thailand) Ltd., a wholly-owned subsidiary of CLP (International) Ltd., decreases the support from EGAT on EGCO. According to the privatization plan approved by the National Energy Policy Council, a sell-off of another 4.1% of EGAT's stake in EGCO is in process and will reduce the support more. However, having CLP Power Projects (Thailand) Ltd. as a strategic investor would strengthen EGCO's core competence and enlarge its investment opportunities. CLP (International) Ltd., an investment arm of CLP Holdings Ltd. one of the largest investor-owned electric utilities in Asia, handles power projects outside Hong Kong and the Mainland.
Financially, the project provides comfortable coverage and enjoys a high level of cash flow stability. Although the sharp depreciation of the baht deteriorated its financial standing, an amended power purchase contract helps alleviate KEGCO's financial difficulty by allowing the availability payment of expenditures involving foreign exchange to be adjusted to a base exchange rate of 28 baht/US$. In addition, the adjustment is retroactive to July 1997. Strict covenants on reserves and minimum debt service coverage provide ample cushion against improper distribution of excess cash flow. Still, non-recourse project debt relies entirely on the project’s revenue stream and assets for repayment.
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