TRIS Rating has assigned the rating of “A-” to the proposed issue of up to Bt13,000 million in senior unsecured debentures of SPCG PLC (SPCG). In addition, TRIS Rating has upgraded the rating of SPCG’s guaranteed and amortizing debentures to “A-” from “BBB+”. At the same time, TRIS Rating has affirmed the company rating of SPCG at “A-”. The outlook remains “stable”. The proceeds from the new debentures will be used to refinance all of the project loans at SPCG's subsidiaries and for SPCG’s normal operations.
After refinancing project loans with the new debentures, all of securities and mortgages pledged as collateral for the project loans will be released. All of the group's financial obligations are then ranked pari passu with no priority debt at the operating companies.
The "A-" ratings continue to reflect the stable cash flows from SPCG’s solar power portfolio which comprises 36 projects with a combined contracted capacity of 206 megawatts (MW). All of the projects have long-term power purchase agreements (PPAs) with the Provincial Electricity Authority (PEA), plus an adder tariff of Bt8 per kilowatt-hour (kWh) of solar energy under the Very Small Power Producer (VSPP) scheme. The ratings also take into consideration SPCG’s management experience in the solar power industry, the proven record of photovoltaic (PV) technology, and SPCG's selection of solar panels and inverters from reputable suppliers. However, the ratings are constrained by SPCG’s high leveraged balance sheet.
The “stable” outlook reflects the expectation that SPCG will be able to maintain its plant performance ratio of above 75% with an expected EBITDA of Bt3,400-Bt3,500 million per year.
The credit upside for SPCG is limited over the next 12 months. On the contrary, the credit downside for SPCG would occur if there is deterioration in solar farm performance, which materially affects SPCG's cash flow or a weaker capital structure due to large debt-funded investments.
SPCG was founded in 1996 as Solar Power Co., Ltd. (SPC) to develop solar power projects in Thailand. In 2011, the company was listed on the Market for Alternative Investment (MAI), and moved its listed to the Stock Exchange of Thailand (SET) in 2012. As of 9 October 2015, the Khunchornyakong family held a 49% interest in SPCG. Currently, SPCG is a holding company that invests in 36 solar power projects with a combined contracted capacity of 206 MW. In 2014, 91% of SPCG’s revenue came from solar farms, 6% from a metal sheet roofing factory, and the remaining 3% from solar rooftops.
SPCG’s solar farms use multi-crystalline PV modules purchased from Kyocera, Japan. Kyocera has supplied more than 1.2 gigawatts (GW) of PV modules for utilities and households around the world since 1982, when it began mass producing multi-crystalline PV modules. SPCG’s solar modules carry a 25-year warranty on efficiency. SPCG’s inverters were supplied by SMA Solar Technology AG (SMA) and are secured by 20-year warranty contracts. SMA has supplied PV inverters with a combined capacity of 35 GW worldwide since 1981.
Currently, all of SPCG's solar farms are in operation. Its first farm has already reached five years of operation while its last farm started up in June 2014. The SPCG's solar farms performance was better than their feasibility studies. During 2010-2014, SPCG generated 717 Gigawatt hour (GWh) of electricity supplied to the grid. This amount was 5.1% higher than an initial estimation based on a 50% probability (P50) of electricity production. If compared with the 90% probability estimate or P90, the actual power generation was higher by 12.3%. The better-than-expected performance was due to the solar irradiation and plant's efficiency were higher than expectation.
For the first nine months of 2015, the company’s revenue was Bt3,713 million, 24% higher than the same period of last year. The higher revenue was reflected the full operation of all 36 solar farms. At the end of September 2015, SPCG’s total debt was Bt16,322 million, down from a peak of Bt18,014 million at the end of 2014, in accordance with SPCG's repayment schedule. The company's total debt to capitalization ratio was 65.8% at the end of September 2015. The company's high leverage is partly offset by the stable and predictable cash flows produced by each solar project. Solar farms have a high operating margin (operating income before depreciation and amortization as percentage of sales) because of the adder tariff and low operating expenses. For the first nine months of 2015, the company’s operating margin was 79.7%. The company generated an earnings before interest, tax, depreciation and amortization (EBITDA) of Bt3,009 million for the first nine months of 2015.
TRIS Rating’s base-case scenario assumes an energy generation will match the P90 estimate and the performance ratio will be 77.5%. The electricity energy produced in the base-case scenario is expected to range from 340-350 GWh per annum. SPCG’s EBITDA is expected to reach Bt3,400-Bt3,500 million per year during 2015-2020. From 2021 onwards, EBITDA is expected to gradually decline as the adder scheme starts to expire. The debt to capitalization ratio is expected to improve to 60%-65% by the end of 2016.
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