No. 73/2014 9 September 2014
Contacts: Pravit Chaichamnapai pravit@trisrating.com
Rungrat Suntornpagasit rungrat@trisrating.com
Parat Mahuttano parat@trisrating.comWiyada Pratoomsuwan, CFA wiyada@trisrating.com
Company Rating: A+ Issue Ratings: Guaranteed A+ Outlook: Stable Company Rating History: Date Rating Outlook/Alert 04/05/06 A Stable 25/07/03 A- Stable 27/07/00 BBB+ Stable Rating Rationale
TRIS Rating upgrades the company and guaranteed debenture ratings of Glow Energy PLC (GLOW) to "A+" from "A". The upgrades reflect the company's strengthened operating and financial performance after the completion of new independent power producer (IPP) and small power producer (SPP) units, its larger base of cash flow generation and its improved balance sheet. The ratings continue to reflect the company's proven track record in the power generating industry in Thailand, reliable cash flows from long-term power purchase agreements (PPA) with the Electricity Generating Authority of Thailand (EGAT), and long-term contracts with a diverse group of industrial customers. These strengths are partially offset by customer concentration risk, as most of GLOW's customers are in the petrochemical industry and are located in the Map Ta Phut area.
GLOW is the leading private power producer in Thailand. The company was established in 1993 as a SPP in the Map Ta Phut Industrial Estate. Its business scope includes cogeneration and IPP projects, both in Thailand and neighboring countries. GDF SUEZ Group remains the major shareholder of GLOW. GDF SUEZ is one of the world's leading energy providers, supplying energy throughout the world, but primarily in Europe.
As of June 2014, GLOW's power generating capacity totaled 3,188 megawatts (MW), consisting of 1,525 MW in IPP plants and a total of 1,663 MW in cogeneration units. One of GLOW's IPP plants is a gas-fired plant located in Chonburi province, one is a hydro power plant located in Lao PDR, and another plant is a coal-fired power plant located in Rayong province. GLOW's cogeneration segment, with plants located in the Map Ta Phut Industrial Estate and the Eastern Seaboard Industrial Estate in Rayong province, mainly caters to petrochemical plants which require highly stable supplies of utilities. However, this structure carries concentration risk because most of the customers are in the petrochemical industry and are located in the Map Ta Phut area. Around 2% of GLOW's total generating capacity mainly serves the automotive industry in Pluak Daeng, Rayong province.
Out of GLOW's total capacity of 3,188 MW of electricity and 1,206 tonnes per hour of steam, 2,345 MW of electricity has been contracted to EGAT under several PPAs spanning 21-25 years. PPAs have remaining terms of three to 25 years. The remainder of GLOW's electricity and steam generating capacities, together with treated water, are supplied to industrial customers. These long-term commitments provide GLOW with reliable sources of cash inflow. Sales of electricity to EGAT comprised 65% of total revenue in the first half of 2014. Sales to industrial customers accounted for the remainder (35%).
In 2013, the net output of electricity from the IPP segment sharply increased to 9,550 gigawatt hours (GWh) due to a new coal-fired power plant, GHECO-One, which started commercial operation in August 2012. The forced outage, however, was substantially high at 6.8%. In 2013, GHECO-One encountered a boiler leak and a pre-heater leak in the first and third quarter, dragging overall equivalent availability factors (EAF) to 88.4%. In the first half of 2014, GHECO-One reported smoother operations as its availability rose to 94.5%. The improved availability of GHECO-One boosted the availability of all the IPP plants to an average of 97.4% in the first half of 2014. GLOW's SPP units operated consistently, with an EAF of 97.5% in 2013 and 96.2% in the first half of 2014. A slight drop was due to planned maintenance.
GLOW's financial performance improved in 2013 and in the first half of 2014. Revenue rose once GHECO-One started up in August 2012 and a new SPP unit came on-stream in December 2012. In 2013, the electricity volume from the IPP units was 9,550 GWH, up 33.1% year on year (y-o-y). The volume from the SPP units increased by 7.2% y-o-y to 10,346 GWH, despite flat demand from GLOW's industrial customers. As a result, GLOW's total revenue soared by 21% to Bt69,207 million in 2013, from Bt57,204 million in 2012. Similarly, GLOW's operating margin before depreciation and amortization (operating margin) improved to 25.4% in 2013 from 21.8% in 2012 due to the improved operation of GHECO-One in the last quarter of 2013, an increase in the fuel adjustment charge (Ft), and a decrease in coal price.
In the first half of 2014, total revenue continued to grow, climbing by 10.5% over the same period of last year, to Bt37,843 million. The operating margin slightly improved to 27.5%. The rise in the operating margin was due to a 15-satang/unit increase in the Ft charge, lower coal prices, and the high availability of GHECO-One. GLOW's total debt to capitalization ratio has improved gradually. The ratio slightly declined from 58.0% to 55.7% in the first half of 2014. The capital structure is expected to strengthen as no major investments are planned in foreseeable future. The debt to capitalization ratio is likely to fall below 50%, equivalent to a debt to equity ratio of 1 times, within 2015. The earnings before interest, tax, depreciation, and amortization (EBITDA) interest coverage ratio was 6.2 times in the first half of 2014 and the funds from operations (FFO) to total debt ratio was 24.6% (annualized with the trailing 12 months). GLOW's liquidity is expected to strengthen as the amount of outstanding long-term debt declines.
The "stable" outlook reflects the expectation that GLOW will receive stable streams of cash from its long-term power sales contracts with EGAT and its industrial customers. TRIS Rating also expects GLOW will sustain a good level of operating performance and deliver reliable cash flow streams as planned.
Company Rating: A+ Issue Ratings: GLOW156A: Bt1,500 million guaranteed debentures due 2015 A+ GLOW173A: Bt1,000 million guaranteed debentures due 2017 A+ GLOW175A: Bt2,000 million guaranteed debentures due 2017 A+ GLOW17OA: Bt1,600 million guaranteed debentures due 2017 A+ GLOW186A: Bt2,500 million guaranteed debentures due 2018 A+ GLOW18NA: Bt1,500 million guaranteed debentures due 2018 A+ GLOW194A: Bt2,000 million guaranteed debentures due 2019 A+ GLOW19OA: Bt1,400 million guaranteed debentures due 2019 A+ GLOW218A: Bt5,555 million guaranteed debentures due 2021 A+ Rating Outlook: Stable KEY RATING CONSIDERATIONS Strengths/Opportunities
Reliable streams of cash flow from long-term sales contracts with EGAT and industrial customers
Proven track record in the power generation industry in Thailand
Continuous support from GDF SUEZ Group
Well-established transmission network in Map Ta Phut Industrial Estate
Mismatch between fuel cost and power tariff in cogeneration segment
Industry concentration risk
GLOW was established in 1993 to provide utilities services in the Map Ta Phut area. GLOW was listed on the Stock Exchange of Thailand (SET) in April 2005. The company's largest shareholder has been the GDF SUEZ Group. SUEZ Group initially acquired GLOW's shares in 2000 and has maintained its majority stake in GLOW. SUEZ S.A. was transformed into GDF SUEZ S.A. following the merger between SUEZ and Gaz de France in July 2008, and the full acquisition of International Power PLC (IPR) in June 2012. After the business combination, IPR became GLOW's major shareholder, with GDF SUEZ as the ultimate shareholder.
GLOW's business comprises the cogeneration (including the SPP) and the IPP businesses. GLOW is the largest SPP in Thailand. The company and its affiliates supply electricity, steam, and treated water to large-scale customers in the Map Ta Phut Industrial Estate, the Eastern Seaboard Industrial Estate, and Siam Eastern Industrial Park. GLOW and its subsidiaries also sell electricity to EGAT. GLOW and three wholly-owned subsidiaries, GLOW SPP1 Co., Ltd. (GSPP1), GLOW SPP2 Co., Ltd. (GSPP2), and GLOW SPP3 Co., Ltd. (GSPP3), own and operate cogeneration facilities. GLOW IPP Co., Ltd. (GIPP), which is located in Chonburi Industrial Estate, is one of Thailand's seven pioneering IPPs. GIPP has been operating since 2003.
In 2007, GLOW set up GHECO-One, a 65:35 joint venture between GLOW and Hemaraj Land and Development PLC (Hemraj), to operate a new 660 MW IPP power plant in Rayong. The project was completed and started commercial operation in August 2012. In May 2009, GLOW purchased shares of a hydro power plant located in Lao PDR by acquiring a 67.25% stake in Houay Ho Power Co., Ltd. (HHPC) from GDF SUEZ Group. HHPC is an IPP project located in the southern part of Lao PDR which commenced operation in 1999. The project supplies electricity to EGAT under a 30-year PPA for a minimum of 126 megawatts equivalent (MWe). Another 2 MW are supplied to Electricite du Laos (EDL) over the same period.
Group in Thailand, in July 2011 GLOW acquired a 100% stake in GLOW SPP11 Co., Ltd. (GSPP11). GSPP11 and its subsidiaries, including GLOW SPP12 Co., Ltd. (GSPP12) and GLOW SPP13 Co., Ltd. (GSPP13) operate gas-fired power plants totaling 253 MW under the SPP scheme. The plants are located in the Pluak Daeng district of Rayong province. GLOW SPP12 was GLOW's latest SPP unit which began commercial operations in December 2012.
As of June 2014, GLOW's power generating capacity totaled 3,188 MW, consisting of 1,525 MW in the IPP segment and 1,663 MW in the cogeneration segment. The power plants in the cogeneration segment also generate a total of 1,206 tonnes per hour of steam. In the first half of 2014, GLOW's power sales to EGAT accounted for 65% of total sales; the balance was contributed by sales of electricity (23%), steam (11%), and treated water (1%) to industrial customers. The cogeneration business generated about 60% of GLOW's total revenue and 42% of EBITDA.
RECENT DEVELOPMENT
Since January 2014, GLOW has applied a new accounting standard regarding financial leases to the IPP segment. Among all generation units of GLOW, GIPP was the only one unit that was applied to this standard. A portion of GIPP's revenue from availability payments now has to be recognized as financial lease income instead of sales revenue. The asset of GIPP was removed from GLOW's balance sheet, resulting in a reduction in GLOW's depreciation. Due to the difference between the two revenue recognition schemes, GLOW's retained earnings was adjusted upward by Bt301 million at the beginning of 2014 to reflect the adoption of the new accounting standard. GLOW's future revenue will be adjusted downward between 2014 and 2017. The revenue will be reduced by about Bt800 million in 2014 and the adjusted amount will lessen afterward. However, after 2017, the revenue will be adjusted up with a range of Bt100-Bt200 million per annum throughout the remaining life of GIPP's contract. The effect of the accounting change is insignificant to GLOW's overall performance as it accounted for less than 1% of GLOW's total revenue and there is no impact on the company's actual cash flow.
GLOW's business profile is strong. Currently, GLOW's power generating capacity is 3,530 MWeq, up from 1,996 MWeq in 2008. The revenue is highly secured, as two-thirds of GLOW's revenues come from sales to EGAT under PPAs. However, geographical concentration and customer concentration risks remain because nearly all of GLOW's power plants are located in the Map Ta Phut area.
GLOW has 16 PPAs, for periods of 21-30 years, to supply 2,345 MW of electricity to EGAT. Under both IPP and SPP schemes, additional amounts of electricity, plus steam and treated water, are supplied to industrial customers under long-term sales contracts. As of June 2014, contracts with EGAT covered 74% of GLOW's total capacity, while contracts with industrial customers covered 26%. The minimum offtake by EGAT for GLOW's SPP projects is 80%, while the minimum offtakes for industrial customers are in the 60%-85% range.
Table 1: Summary of Industrial Customer Contracts
(In Service) as of Dec 2013
Product No. of Contract Offtake Volume Time Remaining Minimum
in Contract Offtake
Power 74 751 MW 1-20 yrs 60%-85%
Steam 20 1,174 tph 1-20 yrs 60%-85%
Water 15 1,669 cu.m./h 1-19 yrs 65%-85%
Chilled water 2 2,050 RT - -
Source: GLOW
The revenue of IPP is derived entirely from sales to EGAT under a PPA. A typical PPA comprises availability payments (AP) and energy payments (EP). For electricity sold to EGAT under the SPP scheme, the electricity tariffs set in the PPAs comprise capacity payments (CP) and EP. EGAT must pay at least 80% of its specified commitment, irrespective of the actual dispatch.
Table 2: GLOW's Sales Breakdown
Sales 2013 Jan-Jun 2014
Breakdown Cogen IPP Total Cogen IPP Total
EGAT-Power (%) 43 100 65 41 100 65
ICs-Power (%) 37 - 23 39 - 23
ICs-Steam (%) 19 - 11 19 - 11
ICs-Water (%) 1 - 1 1 - 1
Total (%) 100 100 100 100 100 100
Total sales (Bt mil.) 42,276 26,931 69,207 22,240 15,603 37,843
Total sales (%) 61 39 100 59 41 100
Note: IC means industrial customers
Source: GLOW
The PPAs with EGAT, as well as the long-term contracts with industrial customers, typically contain provisions for minimum offtakes. The offtakes will provide consistent and reliable cash flows to GLOW. In the first half of 2014, about 65% of GLOW's revenues came from EGAT while the remainder (35%) came from industrial users.
Mismatch of fuel cost and revenue for electricity sold to industrial customers
Electricity supplied to industrial customers accounted for approximately one-fourth of GLOW's total revenue in 2013 and in the first half of 2014. The selling price of electricity is based on the tariff structure of the Provincial Electricity Authority (PEA), which comprises the capacity charge, the energy charge, and the Ft payment. The Ft payment is designed to compensate the power producer for exposure to fuel price fluctuations. However, the Ft payment carries a time lag. The adjustment of the Ft payment is subject to government policy decisions, which could lead to a narrow spread between PEA tariff and GLOW's actual costs. The lag time in the Ft adjustment was the major reason for the fluctuation in GLOW's operating margin.
During 2013 and in the first half of 2014, the Ft adjustment consistently tracked changes in the gas prices. The steady adjustments reduced the pressure on GLOW's performance. GLOW's operating margin before depreciation and amortization improved to 25.5% in 2013 and 27.5% in the first half of 2014. These values compared favorably to an operating margin of 21.8% in 2012, when the Ft was frozen in early 2012. The Ft adjustments widened the spread between PEA tariff and GLOW's fuel cost and returned the spread to its normal level. GLOW partially benefits from the declining coal prices in the global market as the coal cost accounts for 10% of the total cost of producing power in the cogeneration segment. The Japanese Power Utility (JPU), which is a reference for coal prices, was US$81.8 per tonne in April 2014, compared with US$94.93 per tonne in April 2013.
ERC recently announced it would maintain the Ft at 69 satang per unit from September until December 2014. Holding the Ft steady will probably create a mismatch in revenue and fuel costs again. However, the impact is expected to be moderate, as gas prices during the fourth quarter of 2014 are expected to fluctuate less.
Demand for electricity by industrial customers is expected to increase
Demand for electricity by industrial customers increased slightly in 2013. The total amount of electricity that GLOW sold to industrial users grew to 4,719 GWh, up by 2% from the same period last year. The slow growth was attributed to sluggish demand for electricity, resulting in low utilization rate of the cogeneration units.
In the first half of 2014, the power demand of industrial customers increased by 8% y-o-y to 2,548 GWh. Going forward, TRIS Rating believes that the total
volume of power and steam sold by GLOW will continue increasing. Under a recovery of economic environment, GLOW's remaining capacity is expected to be utilized within the next few years.
More stabilized GHECO-One's operating performance
GLOW's 660 MW coal-fired power plant, GHECO-One, located in Rayong, started commercial operation in August 2012. After start-up, GHECO-One encountered a boiler and a pre-heater leaks in the first and third quarter of 2013. These problems meant a de-rating of the GHECO-One plant and a reduced overall EAF. The EAF of GLOW's IPP plants in 2013 stood at 88.4%, while forced outages were 6.8%.
GHECO-One operation improved significantly after
a shutdown for a warranty inspection in May 2013. Availability improved to 94.5% during the first half of 2014. The improved availability of GHECO-One boosted the availability of the IPP portfolio to an average of 97.4% in the first half of 2014. GHECO-One generated about 4,121 Gwh in 2013 and 2,700 Gwh in the first half of 2014. This comprises about 20.7% and 24.9% of GLOW's total electricity sales for each period, respectively.
Parent company's support
GLOW awarded a long-term maintenance contract for its cogeneration plants to the Wood Group, commencing on 1 January 2005. GSPP3 has a long-term contract with Foster Wheeler to maintain the circulating fluidized bed boiler that is a key component of its coal-fired plant. GIPP has routine inspections and other required maintenance performed either by an experienced in-house team or through individual outsource contracts, with GDF SUEZ providing support on an advisory basis or with technical assistance, if necessary.
GDF SUEZ has assigned a management team to supervise GLOW's operations. GLOW is positioned as
a regional strategic member of the GDF SUEZ Group, responsible for the power business in Thailand, Lao PDR, ,Cambodia, and Myanmar. In addition, GDF SUEZ also helps GLOW source the supplies of coal it needs. GLOW can secure coal at more competitive prices through the GDF SUEZ Group.
The GDF SUEZ Group has maintained its holding in GLOW at 69% since April 2005, the date GLOW was listed on the SET. GDF SUEZ was formed in a merger between Gaz de France and SUEZ S.A. in July 2008. GDF SUEZ combined with IPR in 2012. GDF SUEZ, based in Europe, is one of the largest integrated utilities worldwide. It is
the world's leading energy provider, supplying energy throughout the world, but primarily in Europe. GDF SUEZ also operates gas transmission and distribution networks and provides other energy-related services. Following
the acquisition of IPR, it becomes the world's leading IPP.
FINANCIAL ANALYSIS
GHECO-One's operation boosted the Group's revenue
GLOW's total revenue increased by 21 % to Bt69,207 million in 2013, from Bt57,204 million in 2012. For the first half of 2014, revenue climbed to Bt37,843 million in the first half of 2014, a 10.5% rise over the same period last year. The main drivers were the start up of GHECO-One and a 110MW SPP unit, plus an increase in the Ft charge.
GHECO-One is the main reason to GLOW's revenue rise. The revenue from GHECO-One has increased sharply since its commencement in August 2012. GHECO-One generated Bt5,336 million in 2012, Bt11,969 million in 2013, and Bt7,785 million in the first half of 2014. Revenue from GHECO-One was about 49% of the total revenue of the IPP segment or 21% of GLOW's total revenue.
Revenue from the IPP segment in 2013 jumped by 39% from the 2012 level, to Bt26,931 million. While revenue in the SPP segment grew by 12%, to Bt42,276 million. The increase in the SPP segment was due to the start-up of a new SPP unit in late 2012 and a 5.98 satang/unit increase in the Ft charge. In the first half of 2014, the revenue from both segments continued to grow. Revenue from the IPP segment grew to Bt15,603 million, a 19% y-o-y increase. Revenue from the SPP segment was Bt22,240 million, up by 5% y-o-y. Going forward, TRIS Rating expects GLOW's revenue should grow gradually as more customers tie in according to their purchasing contacts
Profitability turned to normal level
GLOW's overall profitability recovered in 2013 and in the first half of 2014 as GHECO-One reported smoother operations and the spread between the PEA tariff and GLOW's fuel cost recovered.
The mismatch between fuel price increases and the Ft adjustment affects the margin on the electricity sold to industrial users. The Ft adjustment was delayed in the
first half of 2012 because of big floods in late 2011. The average gas cost of the SPP units rose by 20.7% to Bt310.8 per million British Thermal Unit (MBTU) in 2012. The sharp increase in the gas cost and the delay in the ft adjustment, pulled GLOW's operating margin down to 21.8% in 2012.
GLOW's profitability, however, has gradually improved after the ERC approved a 48 satang per unit rise in the Ft during the second half of 2012. The ERC has continued to adjust the Ft as gas prices change. The Ft rose by 5.98 satang in 2013 and 15 satang in the first half of 2014. The continuing adjustments relieve the pressure on SPP operators, including GLOW. The GLOW's operating margin before depreciation and amortization improved to 25.5% in 2013 and 27.5% in the first half of 2014.
Healthier balance sheet
GLOW's leverage increased during the past few years due to massive capacity expansions. The total debt to capitalization ratio peaked at 65.3% at the end 2011. After the completion of expansions, the capital structure improved as the total debt to capitalization ratio decreased to 55.7% at the end of June 2014. TRIS Rating expects that the debt to capitalization ratio will likely fall below 50% within 2015, according to the scheduled repayment and the expectation of no major investment. GLOW has a target to maintain the total debt to capitalization ratio at 50%, equivalent to the debt to equity ratio at 1 times.
Strong liquidity and cash flow protection
GLOW's liquidity has strengthened as expected. The EBITDA interest coverage ratio was 6.2 times in the first half of 2014, up from 5.4 times in 2013. The FFO to total debt ratio was 24.6% (annualized, from the trailing 12 months), compared with 21.3% in 2013. Going forwards, GLOW will need to spend Bt1,000-Bt3,000 million per year for maintenance expenditures. The GLOW's expected EBITDA of Bt18,000-Bt20,000 million per year is sufficient to support its capital expenditure needs, scheduled debt repayments of Bt9,000 million per year, and planned dividend payments.
Plant Performance Statistics of GLOW
Cogeneration Performance Unit Jan-Jun 2013 2012 2011 2010 2009 2008
2014
Net output* MWhe ('000) 6,277 12,402 11,724 9,594 8,235 8,152 8,342
Availability % 96.18 97.51 95.87 95.26 93.57 92.9 94.46
Forced outage % 0.56 0.5 0.47 0.64 0.39 1.78 1.26
Schedule & maintenance outage** % 3.26 1.99 3.65 4.1 6.04 5.32 4.28
- Plant heat rate* - Gas-fired BTU/kWh eq 8,223 8,105 8,091 8,621 8,762 8,813 8,850
- Plant heat rate* - Coal-fired BTU/kWh eq 10,357 10,513 10,420 10,796 10,165 10,280 10,355
IPP Performance***
Net output MWhe ('000) 5,263 9,222 6,661 4,841 5,327 5,100 5,054
Availability % 97.35 88.42 84.82 96.26 95.37 93.07 91.38
Forced outage % 0.79 6.77 5.53 1.82 1.8 0.19 0.55
Schedule & maintenance outage** % 1.85 4.81 9.65 1.91 2.82 6.74 8.07
- Plant heat rate - Gas-fired BTU/kWh eq 6,973 6,946 6,930 6,924 6,898 6,938 6,923
- Plant heat rate - Coal-fired BTU/kWh eq 8,909 9,183 9,094 - - - -
* Including power and steam