TRIS Rating Co., Ltd. has assigned the rating of “BBB-’’ to the proposed issue of up to Bt3,000 million in senior debentures of National Power Supply PLC (NPS). At the same time, TRIS Rating has affirmed the company rating of NPS at “BBB” and has affirmed the rating of NPS’s existing senior debentures at “BBB-”. The outlook remains “stable”. The proceeds from the new debentures will be used to repay debt and for planned capital expenditures. The ratings reflect the reliable cash flow from long-term Power Purchase Agreements (PPA) with the Electricity Generating Authority of Thailand (EGAT) and Double A (1991) PLC (DA) under the Small Power Producer (SPP) scheme and an experienced management team from the DA Group. The ratings are partially offset by heavy capital expenditures required to add 800 megawatts (MW) in new power generating capacity, and continuous restructure of business within the group. NPS’s ratings are constrained by the “BBB” company rating assigned to DA which held 36.2% of the outstanding shares of NPS as of December 2011. The “stable” outlook reflects TRIS Rating’s expectation that NPS will continue to receive reliable cash flows from its existing power plants. Its financial profile is expected to improve after the return from new investments is fully realized.
TRIS Rating reported that NPS is the leading operator of biomass power plants in Thailand. Currently, the company owns and operates eight mixed fuel power plants with a total capacity of 493 MW and 880 tonnes of steam under the SPP scheme. NPS’s electricity revenue is secured under 25-year PPAs with EGAT for 304 MW plus power sales agreements with AA for 74 MW. The entire steam output is supplied to DA under steam sales contracts. With its proven track record of operating biomass-mixed fuel power plants, NPS has been awarded a number of SPP licenses and an Independent Power Producer (IPP) license from the government. NPS was awarded licenses covering up to 800 MW total power generating capacity. The power plants of NPS and its subsidiaries are located in Prachinburi and Chachoengsao provinces. The power plants are designed to run on a mix of coal and biomass. While mixed fuels provide a cost advantage and flexibility in fuel selection, a biomass co-fired power plant runs a greater risk of deterioration of equipment and parts.
TRIS Rating said, NPS is currently the flagship power company of the DA Group. In addition to the power sector, NPS aims to invest in energy-related businesses and other businesses. NPS’s investments include Double A Ethanol Co., Ltd., producing ethanol from cassava with a production capacity of 500,000 litre per day; NPS Ocean Star Co., Ltd., a coal transportation service provider with 52,000 dead weight ton capacity; and Inter Stevedoring 5 Co., Ltd., which offers floating crane barge services to facilitate coal transportation.
In 2011, the DA Group and NPS continued their restructuring within the Group. NPS purchased three more biomass power plants from companies in the DA Group at total cost of Bt688 million. These three plants operate 100% biomass-fired power, with a total power generating capacity of 57 MW and 280 tonnes of the steam under SPP scheme. NPS’s total electricity generating capacity rose to 493 MW in 2011 after the acquisition. In 2011, NPS acquired shares of three companies from related companies in the DA Group at a total cost of Bt207 million. The new subsidiaries comprise industrial water provider in 304 IP, a rice bran oil producer, and a research and development firm. In June 2011, NPS acquired the rights to operate a coal mine of PT Utami Jaya Mulia in Indonesia worth Bt396 million.
NPS reported net profit of Bt569 million in 2011, down by 54% from 2010. The sharp decline came mainly from the lack of foreign exchange gains and a lower reversal of asset impairment compared with 2010. Excluding these extraordinary items, profit in 2011 was Bt516 million, down by 20% from 2010. The operating margin before depreciation and amortization ratio dropped to 22.8% in 2011 compared with 27.3% in 2010. Some of NPS’s new subsidiaries, such as rice-bran oil sales and newly acquired biomass power plants, have lower margins. The mix of these businesses pulled down the overall company’s profit margin. Earnings before interest, tax, depreciation and amortization (EBITDA) in 2011 rose by 19% to Bt2,512 million because of the contribution from the new businesses acquired during 2011. However, the EBITDA interest coverage ratio fell to 3.67 times in 2011 from 4.87 times in 2010 because of higher leverage for investments. The total debt to capitalization ratio deteriorated to 52.1% in 2011 from 43.7% in 2010. Total debt increased to Bt11,967 million from Bt8,804 million while the equity base weakened mainly from the provision for an impairment on land held by a wholly-owned subsidiary namely National Power Supply IPP Co., Ltd. (NPSIPP). NPSIPP is developing 600 MW power plants under the IPP scheme. NPSIPP bought 807 rai of land from a related party at a cost of Bt1,077 million, while an independent appraiser valued the land at only Bt41 million. The difference was recorded as deduction in NPS’s equity.
Going forward, NPS’s profitability remains under pressure because the costs of both coal and biomass will follow the price of oil. NPS’s profitability will be more volatile once the ethanol project starts up in 2012-2013. The price of ethanol is capped by the government’s policy while the price of cassava, the raw material, fluctuates, as it is a commodity product. NPS has committed to expansion projects worth Bt36,000 million in total during 2011-2016. These projects include IPP, two SPPs using renewable fuels, and one ethanol plant. The two new SPPs are targeted to start operation in 2013-2014, while the IPP project is expected to be completed by 2016-2017. Once these projects commence, NPS’s total power generating capacity will increase to 1,293 MW, from its current capacity of 493 MW. However, the company’s ability to develop all the projects on time, and without weakening its financial profile, remains a rating concern, said TRIS Rating. — End
Company Rating: Affirmed at BBB Issue Ratings: NPS145A: Bt3,000 million senior debentures due 2014 Affirmed at BBB- Up to Bt3,000 million senior debentures due within 2015 BBB- Rating Outlook: Stable TRIS Rating Co., Ltd./www.trisrating.com Contact: santaya@trisrating.com, Tel: 0-2231-3011 ext 500/Silom Complex Building, 24th Floor, 191 Silom Road, Bangkok 10500, Thailand Copyright 2012, 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.