TRIS Rating has affirmed the company rating of National Power Supply PLC (NPS) at “BBB” and has affirmed the ratings of “BBB-” to NPS’s senior debentures. At the same time, TRIS Rating has assigned the rating of “BBB-’’ to NPS’s proposed issue of up to Bt5,000 million in senior debentures. The outlook remains “stable”. The proceeds from the new debentures will be used for planned capital expenditures and working capital. The ratings reflect the reliable cash flows from long-term Power Purchase Agreements (PPA) with the Electricity Generating Authority of Thailand (EGAT) under the Small Power Producer (SPP) scheme and Double A (1991) PLC (DA). The ratings are partially offset by NPS’s deteriorated capital structure, continued substantial capital expenditures, and related party transactions. NPS’s ratings are also constrained by the “BBB” company rating assigned to DA which held 36.2% of the outstanding shares of NPS as of August 2013. The “stable” outlook reflects TRIS Rating’s expectation that NPS will continue to maintain its smooth operating performance and 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.
NPS is the leading operator of biomass power plants in Thailand. Since 2010, the DA Group and NPS have reorganized the structure of the group. The reorganization positions NPS as the flagship power company of the DA Group. NPS currently owns and operates nine coal and biomass power plants under the SPP scheme with a total capacity of 493 megawatts (MW) of electricity and 1,180 tonnes of steam. The power plants owned by NPS and its subsidiaries are located in Prachinburi and Chachoengsao provinces. In addition to its core power sector, NPS has expanded its business scope to encompass energy-related businesses, resources, and logistics. NPS’s investments include E85 Co., Ltd. (formerly called Double A Ethanol), which produces ethanol from cassava at a production capacity of 500,000 litre per day. NPS has also invested in coal transportation service providers, and floating crane barge services to facilitate coal transportation. In addition, NPS’s businesses include an industrial water provider in the 304 Industrial Park (304IP), a rice bran oil producer, and a research and development firm. NPS also acquired the rights, for Bt396 million, to operate a coal mine in Indonesia. In 2012, the power segment remained NPS’s major source of revenue and earnings before interest, tax, depreciation and amortization (EBITDA). About 95% of NPS’s total EBITDA came from the power segment while 5% came from other businesses.
About 62% of NPS’s electricity generating capacity is secured under 25-year PPAs with EGAT. The remaining electricity and the steam output is supplied to DA under long-term contracts and sold to customers in the industrial estates in Prachinburi and Chachoengsao. The power plants are designed to run on coal and biomass. Biomass fuel plant provides a cost advantage and offers flexibility in fuel selection. However, a biomass fired power plant requires higher maintenance and the fuel causes more deterioration of equipment and parts, compared with coal-fired and gas-fired plants.
NPS’s performance improved in the first half of 2013 after major overhaul in 2012. NPS’s total plant availability dropped to 82.3% in 2012 from 86%-87% during 2010-2011 because one major unit was shut down for secondary air system modification. The overhaul was planned to tackle the erosion of boiler tubes and to modify the boiler to handle low-heat coal to reduce cost. The operations of NPS’s nine power plants were better in the first half of 2013 despite major overhaul of another major power unit in the second quarter of 2013. Average plant availability improved to 85.9% in the first half of 2013 with average forced outages of 3.8% compared with 3.8%-5.3% during the past three years. NPS installed new equipments and implemented fuel management system to improve the fuel efficiency. As a result, the plant heat rate improved to 12,386 BTU per kilo-watt hour (KWh) from 12,827-13,104 BTU/KWh during 2010-2012, indicating less fuel consumption for power and steam production.
NPS’s profitability and net profit jumped significantly in 2012 and in the first half of 2013. It reported a net profit of Bt1,253 million in 2012, up substantially from an abnormally low level of Bt606 million in 2011. Profit further rose to Bt837 million in the first half of 2013, up 138% over the same period last year. The operating margin before depreciation and amortization jumped to 27.6% in 2012 and 32.0% in the first half of 2013, compared with 23.0% in 2011. The higher profitability was attributable to a higher electricity tariff rate and falling coal prices during 2012 and the first half of 2013. The reference coal index, Japanese Power Utility Index (JPU), declined from US$130 in 2011 to US$112 in 2012 and US$95 currently. NPS also replaced some high caloric value coal with low caloric value coal and used more low cost biomass in order to reduce fuel cost. Earnings before interest, tax, depreciation and amortization (EBITDA) in 2012 rose by 33% to Bt3,393 million in 2012, and further increased by 52% over the same period last year, to Bt2,062 million in the first six months of 2013. The rising profitability drove the EBITDA interest coverage ratio to 5.0 times in the first half of 2013, from 3.7 times in 2011. However, NPS’s capital structure has deteriorated noticeably. The total debt to capitalization ratio deteriorated to 60.2% in 2012 and 59.7% as of June 2013 from 51.9% in 2011. Total debt increased to Bt15,318 million as of June 2013 from Bt11,967 million in 2011 from continued capital expenditures and new investments during the year. In addition, NPS paid dividend of Bt2,800 million in 2012. In terms of related party transaction, as of June 2013, NPS and subsidiaries had deposit for land purchase with its related parties totaling Bt1,615 million, down from Bt2,422 million as of December 2011.
NPS’s profitability is expected to remain strong in the second half of 2013, mainly supported by low coal prices and subdued biomass cost. In addition, the Energy Regulatory Commission announced another increase in the fuel adjustment charge (Ft). The Ft will rise by 7.08 satang per KWh from September 2013 to December 2013. The prospect for making ethanol from cassava have became more encouraging with the support from the government policy. The Cabinet approved a policy to help ethanol producers who use cassava as a raw material by requiring sellers of gasohol to buy ethanol made from cassava (38% of the total amount of gasohol purchase made by the sellers) and ethanol made from molasses (62% of total gasohol purchased). Demand for gasohol rose significantly after the Ministry of Energy’s mandate to ban ULG91 sales since January 2013. Demand for gasohol drove demand for ethanol, soaring by 86% to 2.6 million litres per day during the second quarter of 2013, compared with an average of 1.4 million litres per day in 2012.
NPS’s leverage is expected to remain high due to another dividend payment of Bt2,105 million in July 2013 and continued investments worth Bt35,000 million in 2013-2015. These projects include one independent power producer (IPP) project, two SPP projects using renewable fuels, and one more production line of an ethanol plant. The two new SPP plants are planned to start operation in 2014 and 2015, respectively. The IPP project is in the process of filing for Environmental and Health Impact Assessment (EHIA) approval and the project is expected to be completed by 2016-2017. NPS is expected to develop all the projects without further weakening its financial profile.
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