TRIS Rating has assigned the rating of “BBB-’’ to the proposed issue of up to Bt5,000 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 debentures at “BBB-”. The outlook remains “stable”. The proceeds from the new debentures will be used to repay NPS’s maturing debentures and for planned capital expenditures. The ratings reflect the reliable cash flow from NPS’s 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. The ratings are offset by NPS’s high level of leverage and its ongoing related party transactions. 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 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. NPS is expected to develop all the projects it has planned without further weakening its financial profile.
NPS is the leading operator of biomass power plants in Thailand. Since 2010, the DA Group and NPS have been reorganizing the structure of the group. The reorganization positions NPS as the flagship energy company of the DA Group. NPS currently owns and operates a total of nine biomass-fired and coal-fired power plants under the SPP scheme. The nine plants have a total capacity of 493 megawatts (MW) of electricity and 1,180 tonnes per hour of steam. The power plants owned by NPS and its subsidiaries are located in industrial parks in Prachinburi and Chachoengsao provinces. In addition to producing electricity, its main line of business, NPS has expanded its business scope to encompass energy-related businesses, and supporting businesses to secure fuel supply and reduce costs. NPS engaged in ethanol made from cassava with production capacity of up to 500,000 liters per day and also owns a rice bran oil production firm. In addition, NPS invested in eucalyptus (energy tree) planting promotion business, research and development company, industrial water production firm, and acquired the rights to operate a coal mine in Indonesia. NPS also provides coal and biomass transportation services including floating crane barge services. However, the power segment remained NPS’s major source of revenue and earnings before interest, tax, depreciation and amortization (EBITDA). In 2013, about 88% of NPS’s total EBITDA came from the power segment while 12% came from other businesses.
About 62% of NPS’s electricity generating capacity is secured under 25-year PPAs with EGAT. The remaining amount of electricity and the steam output are 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. A biomass fueled plant yields a cost advantage for the operator and offers flexibility in the choice of fuel. However, a biomass fired power plant requires higher maintenance and the fuel causes more deterioration in the equipments, compared with coal-fired and gas-fired plants.
NPS’s performance continued to improve in 2013. The operations of NPS’s nine power plants were better in 2013 despite a major overhaul of one large power unit in the second quarter of 2013. Average plant availability improved to 86.0% of total available hours in 2013, from 83.3% in 2012. Forced outages were 4.0%, compared with 3.7%-5.3% during the past three years. NPS has completed boiler modifications for more efficient combustion and continued its fuel management system in order to reduce fuel consumption.
NPS’s profitability and net profit continued to improve in 2013. The company reported a net profit of Bt1,458 million in 2013, up 16.1% from Bt1,255 million in 2012. The operating margin before depreciation and amortization increased to 29.9% in 2013 from 27.6% in 2012. The higher profitability was attributable to a higher electricity tariff rate and falling coal prices during 2013. The Japanese Power Utility Index (JPU), a widely used index for coal prices, declined from US$129.33 in 2011 to US$110.83 in 2012. The JPU was US$94.06 in 2013. NPS also could replace some high calorific value coal with low calorific value coal after boiler modifications and used more low cost biomass in order to reduce fuel cost. EBITDA rose by 33% to Bt3,392 million in 2012 and increased by 16% to Bt3,944 million in 2013. However, NPS’s leverage continued to rise. The total debt to capitalization ratio deteriorated to 64.4% in 2013 from 51.9% in 2011. Total debt increased to Bt16,771 million as of December 2013 from Bt11,967 million in 2011 because NPS continued to make capital expenditures and new investments during the year. In addition, NPS paid total dividend of Bt4,900 million in 2012 and 2013.
In the beginning of 2013, National Power Supply IPP Co., Ltd. (NPSIPP) and Biomass Electricity Co., Ltd. (BECO), NPS’s subsidiaries, transferred their power development projects to IPPIP2 Co., Ltd. and NPSPP9 Co., Ltd, two other subsidiaries of NPS. In the third quarter of 2013, NPS sold NPSIPP and BECO to related companies in the DA group for Bt2,382 million in total. The sales values were close to NPS’s cost at the transaction date. NPS has plans to build three combined-cycle power plants in Prachinburi and Chachoengsao provinces with a combined power generating capacity of 360MW. The investments are planned because NPS has lands located close to PTT PLC’s the fourth transmission pipeline project. In 2013, NPS, via its subsidiaries, acquired 288 rai of land from three related companies. NPS purchased the land in order to build three new combined cycle power plants. NPS agreed to pay Bt624 million for the land, and paid a Bt605 million deposit. At the end of 2013, the total amount of deposit for land NPS had paid to related companies was Bt1,786 million, from Bt1,615 million as of December 2012.
Looking forward, NPS’s profitability in power segment is expected to remain satisfactory, mainly supported by low coal prices, which accounted about 30% of NPS’s power production cost. However, NPS’s profitability will be under pressure because of the performance of the ethanol segment. In 2013, the ethanol segment reported a loss before depreciation and amortization of Bt167 million during its half year of commercial operation. Currently, E85 Co., Ltd., NPS’s subsidiary in ethanol business, is requesting for the waiver for the breach of financial covenants with one financial institution.
NPS’s leverage is expected to remain high because of its continued expansions. NPS has set an investment budget of about Bt6,000 million in 2014. NPS’s projects include two power projects using biomass and one more production line in its ethanol plant. The new power plants will start operations in 2014 and 2015. For the 2015 budget, NPS has revised capital expenditures down to about Bt600 million because development cost of the Independent Power Producer (IPP) project will be postponed for a few years. NPS is planning to add three more combined cycle power plants with a total generating capacity of 360 MW in the portfolio.
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