TRIS Rating Co., Ltd. has affirmed the company and issue ratings of Banpu PLC (BANPU) at “AA-”. The outlook remains “stable”. The ratings continue to reflect the company’s leading position in the regional coal industry, its diversified coal reserves and customer base as well as the reliable stream of dividend income received from its power segment. The ratings also take into consideration the company’s healthy financial position, its flexibility to rationalize capital expenditures, and capability to reduce operating costs during the downturn of coal industry. Weaker coal prices, the global economic slowdown, and regulatory risks remain rating concerns. The “stable” outlook reflects the expectation that BANPU will maintain its healthy financial position and liquidity. BANPU’s cost reduction plans and its flexibility to defer capital expenditures would help BANPU weather the current downturn in the coal industry. A reliable stream of dividends from the power business will provide some cushion for the company during the more challenging business environment.
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, Australia, China, and Mongolia. The Indonesian operation has remained the major earnings contributor. In the first nine months of 2012, the Indonesian operations accounted for 66% of total earnings before interest, tax, depreciation, and amortization (EBITDA). The Australian operations made up 23% of total EBITDA while operations in Thailand comprised 9% of EBITDA. China contributed only 2% of total EBITDA in the first nine months of 2012. In terms of BANPU’s business segments, the contribution from the coal segment comprised 91% of total EBITDA in the first three quarters of 2012. The remaining 9% came from the power segment.
TRIS Rating said, in the first nine months of 2012, BANPU produced 31.1 million tonnes of coal, excluding its operations in China. The total coal production comprised 19.5 million tonnes from Indonesia and 11.6 million tonnes from Australia. At the end of September 2012, the total coal reserves in Indonesia and Australia were 803 million tonnes, while the reserves based on BANPU’s percentages of holdings stood at 581 million tonnes. BANPU’s current reserves to production ratio indicate a reserve life of around 19 years.
Since the last quarter of 2011, coal prices have gradually declined worldwide, due mainly to an oversupply in the global coal market. The oversupply was the result of an increasing coal production from major producing countries, after an extended period of favorable coal prices. At the same time, some power companies in the US switched their fuel source from coal to shale gas due to the abnormally low cost of gas in the US. As the result of switching fuel use, US coal export rose. In the spot market, Barlow Jonker Index, which is the benchmark price for seaborne coal in Asia, fell gradually from US$123 per tonne in September 2011 to US$80 per tonne as of November 2012. The performance of BANPU’s coal segment during the first three quarters of 2012 was under pressure because of the weaker coal prices and higher production costs. In the first nine months of 2012, the average gross margin of BANPU’s coal segment declined to 40.7% from 44.7% in the same period of last year, compared with a 19.1% decline in the benchmark coal price over the same period.
After implementing stringent cost reduction programs in Indonesian and Australian mines, BANPU’s gross margin from coal business was maintained at 39.1% in the third quarter of 2012, close to the second quarter level. The margin stayed flat even though the average selling price of coal fell to US$79.74 per tonne, an 11.7% drop compared with average price in the second quarter of 2012.
The power business, which contributed 9% of total EBITDA in the first nine months of 2012, was satisfactory. In Thailand, BANPU holds a 50% stake in BLCP Power Ltd. (BLCP), a 1,434 megawatt (MW) coal-fired power plant operating under the Independent Power Producer (IPP) scheme. BLCP contributed equity income of Bt2,092 million in the first nine months of 2012. Performance in the power business in China improved in the first nine months of 2012. The coal-fired power plants in China contributed EBITDA of US$26.4 million in the first nine months of 2012, an increase of 37.5% compared with the same period of last year. The improved performance was mainly due to lowering fuel cost as a result of falling coal prices.
Despite the weak coal market situation, BANPU’s total EBITDA was relatively flat at Bt23,793 million in the first nine months of 2012. This was a result of favorable coal prices under long-term contracts, higher sales volume of coal, improvements in the power business, and gains from coal swaps and interest rate swaps. The EBITDA interest coverage ratio softens modestly to 9.2 times in the first nine months of 2012 from 10.5 times in 2011.
BANPU’s capital structure was considered healthy. After peaking at 51.6% as of December 2010, BANPU’s net debt to capitalization ratio improved to 42.4% at the end of 2011. As of September 2012, the net debt to capitalization ratio slightly increased to 44.7%. In order to preserve liquidity, BANPU recently announced that it would cut its capital expenditure budget for the next five years by 30% from the original plan. Its capital expenditure budget during 2012-2015 was revised to US$1,248 million, down from US$1,750 million. Spending for development and expansions was rescheduled. In addition, BANPU is implementing a number of cost reduction programs, including reducing the stripping ratio of Indonesian mines. The cost reduction programs will help preserve operating margin during softening coal prices. Looking forward, BANPU’s EBITDA is forecasted to be around US$850-US$1,000 million per year, given the assumption that coal prices will remain weak. BANPU’s annual debt service will be managed at US$350-US$400 million per year during the next three years. Operating cash flow is expected to be sufficient for BANPU’s revised capital expenditure plan, normal dividend payments and annual debt service. The net debt to capitalization ratio is projected to remain at an acceptable level and below the company’s policy.
According to the Civil Court ruling on 20 September 2012, BANPU was ordered to pay Mr. Siva Nganthavee and his associated companies, for damages arising from the misuse of information regarding the lignite-fired power plant project in Hongsa, Lao PDR. If BANPU has to pay the compensation as per court’s order, the total payment is estimated to be Bt33,240 million. BANPU disagrees with the verdict and is in the process of lodging an appeal at the Court of Appeals. The verdict is not final because the case is to go through higher courts, the court of Appeals and possibly the Supreme Court. Thus, BANPU is not expected to be liable for any payment in the near term, said TRIS Rating. — End
Banpu PLC (BANPU)
Company Rating: Affirmed at AA-
Issue Ratings:
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-
BANPU195A: Bt3,000 million senior debentures due 2019 Affirmed at AA-
BANPU214A: Bt4,000 million senior debentures due 2021 Affirmed at AA-
BANPU225A: Bt3,000 million senior debentures due 2022 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-
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.