TRIS Rating Co., Ltd. has assigned the rating of “AA-’’ to the senior debentures worth Bt6,000 million 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 used to refinance existing debts and for future investments. The ratings continue to reflect the company’s leading position in the regional coal industry, diversified coal reserves and customer base, as well as a reliable stream of dividend income from its power business. Regulatory risks in Australia and Indonesia remain rating concerns as does the global economic slowdown. The “stable” outlook reflects the expectation that BANPU will maintain its financial position when expanding its coal business. The current drop in coal prices will be partly mitigated by BANPU’s existing contracts with a diverse set of customers.
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. The Indonesian operation has remained the major earnings contributor. In 2011, the Indonesian operations accounted for 68% of earnings before interest, tax, depreciation, and amortization (EBITDA). The Australian operations made up 26% of total EBITDA while operations in Thailand comprised 6% of EBITDA. China has no contribution after the Daning mine divestment in the first quarter of 2011. In terms of BANPU’s business segments, the contribution from the coal segment increased to 94% of total EBITDA in 2011, from 91% in 2010. The remaining 6% came from the power segment in 2011.
TRIS Rating said, in 2011, coal production by BANPU, excluding China, totaled 39.9 million tonnes, comprising 24.6 million tonnes from Indonesia and 15.4 million tonnes from Australia. At the end of December 2011, the total coal reserves in Indonesia and Australia were 833 million tonnes, while the reserves based on BANPU’s percentages of holdings stood at 599 million tonnes. BANPU’s reserves to production ratio currently indicates a reserve life of around 19 years. The reserve life increased in 2011, mainly because of new technology application, which helps extend mine life.
BANPU’s coal operations in Australia, by Centennial Coal Co., Ltd. (CEY), was in line with expectations. CEY sold 14.9 million tonnes of coal in 2011 and contributed Bt32,751 million in revenue to BANPU during the year. Despite low average selling price from long-term contracts, CEY’s EBITDA margin was satisfactory at 25%, compared with 29% for BANPU’s Indonesian coal operations. CEY reported EBITDA of Bt8,218 million in 2011.
In 2011, BANPU acquired 100% of Hunnu, a listed company on the Australian Securities Exchange, for A$472 million. Hunnu is a developer of coal projects in Mongolia. Currently, Hunnu has 15 prospective coking and thermal coal projects in Mongolia, two of which have a combined 691 million tonnes of coal resources (based on percentage of holding). As most projects are in exploration phases, Hunnu reported a net loss of Bt38 million during November to December 2011.
The power business in Thailand operated by BLCP Power Ltd. (BLCP), in which BANPU holds a 50% stake, remains smooth. BLCP, a 1,434 megawatts (MW) coal-fired power plant under Independent Power Producer (IPP), contributed equity income of Bt1,952 million, accounting for 6% of BANPU’s total EBITDA in 2011. The equity income of BLCP was lower from more than Bt3,000 million per year during previous years because of the lower tariff rate as stipulated in the Power Purchase Agreement (PPA). Looking forward, BLCP’s net profit will gradually decrease in accordance with the front-loaded electricity tariff structure. However, the Hongsa project, an IPP project in Lao PDR will help offset declining contribution of BLCP in the future. The Hongsa project is under construction and is scheduled to be commissioned in 2015. Recently, BLCP’s major supplier of coal has requested for coal price renegotiation after prevailing coal price significantly surpasses the contract price of about US$50 per tonne. Consequently, BLCP has proposed electricity tariff adjustment to Electricity Generating Authority of Thailand (EGAT) as power operators normally pass through its coal price to tariff under the PPA with EGAT. Currently, the tariff adjustment is in the consideration of EGAT.
BANPU’s leverage improved in 2011 after peaking in 2010 when it acquired CEY. The net debt to capitalization ratio fell to 42.4% at the end of December 2011, from 51.6% as of December 2010 partly because of the divestment of Daning mine worth US$669 million in China. BANPU increased its capital expenditure budget to approximately US$1,750 million during 2012-2015, from its previous budget of US$1,339 million, to incorporate higher development cost including the newly acquired Hunnu’s projects. Based on EBITDA of US$900-US$1,000 million per year, BANPU’s funds from operations (FFOs) are sufficient to fund the company’s capital expenditures. Its annual debt service will be managed at US$200-US$400 million per year. The net debt to capitalization ratio is projected to remain below its capital structure policy.
BANPU’s consolidated net profit in 2011 was high at Bt20,060 million. The after-tax gain of Bt6,307 million, from the divestment of Daning, bolstered the net profit. The operating margin before depreciation and amortization increased to 25.5% in 2011, from 17.4% in 2010, because of favorable coal prices. EBITDA grew by 64% over the 2010 level to Bt31,979 million in 2011. Looking forward, economic slowdowns in major coal importing countries, including China, have weakened coal prices. Despite the current decline in the prices of coal, the company’s coal operations for 2012 are expected to stay healthy because approximately 60% of Indonesian coal sales in 2012 have already been fixed at favorable prices. For the Australian coal operations, the average selling price will gradually increase to reflect export parity price after the gradual expiration of existing contracts. However, BANPU is exposed to higher regulatory risk for its coal operations. Recently, Mineral Resources Rent Tax Legislations have been passed by the Australian parliament and will take effect on 1 July 2012 following Carbon Tax Bill which was passed by the end of 2011. In February 2012, the Indonesian government announced the new regulation regarding foreign holding in coal mining companies. The foreign coal miners have to reduce their stakes to less than 50% after 10 years of operation. However, the details of implementation remain unclear about whether the new regulation would be applied for existing miners or which types of mining concession will be included, said TRIS Rating. — End
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- BANPU 184A: Bt5,500 million senior debentures due 2018 Affirmed at AA- BANPU214A: Bt4,000 million senior debentures due 2021 Affirmed at AA- BANPU234A: Bt3,500 million senior debentures due 2023 Affirmed at AA- BANPU264A: Bt2,000 million senior debentures due 2026 Affirmed at AA- Up to Bt6,000 million senior debentures due within 2022 AA- Rating Outlook: Stable
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