TRIS Rating has assigned the company rating of Thai Solar Energy PLC (TSE) at “BBB” with “stable” outlook. The rating reflects the predictable cash flows TSE receives from the long-term power purchase agreements (PPAs) with state-owned utility off-takers, low operational risk, use of proven photovoltaic (PV) technology and reliable solar panels. However, the rating is partially offset by TSE’s short track record of operation and an expected rise in financial leverage due to the company’s growth strategy.
The “stable” outlook reflects the expectation that TSE’s solar power projects will operate smoothly as planned. Interest, tax, depreciation, and amortization (EBITDA) generated from existing projects is expected to range between Bt800-Bt1,000 million per year.
The credit upside for TSE would occur if the company successfully expands its capacity and thus enlarges its cash flow base. On the contrary, the credit downside for TSE would happen if the performance of its solar PV projects is significantly lower than expectation or if its financial profile significantly deteriorates as a result of aggressively debt-funded investments.
TSE is an investment holding company. The company was established in 2008 to develop solar power projects in Thailand. The company started its first solar thermal plant in 2011 and expanded to solar PV projects in 2013 and solar rooftop projects in 2014. The company invested in the solar PV projects through a 60:40 joint-venture (JV) with Global Power Synergy Company PLC (GPSC), a subsidiary of the PTT Group. TSE was listed on the Market for Alternative Investment (MAI) in October 2014. As of December 2015, the major shareholder was Dr. Cathleen Mallenont, holding approximately 63% of TSE’s shares.
As of December 2015, the total contracted capacity of TSE’s solar projects was 98.5 megawatt (MW), consisting of 4.5 MW in a solar thermal project, 80 MW in solar PV projects, and 14 MW in solar rooftop projects. Approximately 90% of TSE’s revenue and earnings before EBITDA was contributed from the solar PV projects.
TSE’s business profile is satisfactory, supported by reliable cash flows from selling electricity to the Provincial Electricity Authority (PEA) and the Metropolitan Electricity Authority (MEA). TSE’s solar PV projects have PPAs that receive a tariff adder of Bt6.5 per kilowatt hours (kWh) for 10 years. The solar rooftop projects carry PPAs obtaining the feed-in-tariff (FIT) of Bt6.16 per kWh for 25 years. TSE’s resource risk and operational risk are low. For the solar PV projects, TSE used multicrystalline PV modules and solar panels supplied from two reputable suppliers, Conergy from Germany and SunEdison from the United States (US). Conergy and SunEdison also provide power output guarantees for 10 years, covering the period of received adders. The guarantee strengthens TSE’s business profile by securing minimum revenue from the solar PV projects. However, the viability of the power output guarantees may be less certain considering the currently weak financial performances of the guarantors.
TSE’s business strengths are weighted down by its short track record of operation and future debt-funded investments expected to occur over the next few years. The company plans to expand its capacity from 98.5 MW (or 66.5 MW equity capacity) to approximately 246.5 MW by 2018.
In 2014, TSE totally generated 134 gigawatt hours (GWh) with 96% of total output contributed from the solar PV projects. The actual output of solar PV projects exceeded the guaranteed amount by 8.7%. The power output from solar rooftop projects was 1.1 GWh since only five out of 14 projects were operating in 2014. The performance of the solar thermal project was unsatisfactory since its start-up because of its prolonged technical problems relating to the heating system. The project generated only 1.5-2 GWh during 2013-2014, thus TSE impaired about Bt250 million of its asset value in 2014.
During January-September 2015, TSE’s total power output was 129.4 GWh, up by 39% from the same period of the previous year. Solar PV projects generated 119.3 GWh, a 30.3% rise, reflecting full operations at all solar PV projects. The output of solar rooftop projects increased to 9.3 GWh in the first nine months of 2015 and will continue to rise after the remaining projects start selling electricity. TRIS Rating estimates that the full power output of all prevailing projects is expected to be approximately 170-190 GWh per year.
The normalized EBITDA, excluding extraordinary items, was Bt621 million in 2014 and Bt657 million during the first nine months of 2015. At the project level, the solar PV projects provide a high EBITDA margin of approximately 90% due to the favorable tariff adder scheme. The EBITDA margin of solar rooftop projects range between 75%-80%. At the end of September 2015, TSE’s total proportionate debt was Bt3,110 million, a slight decrease from Bt3,159 million at the end of 2014. Its total shareholders' equity improved to Bt3,924 million as of September 2015 from Bt933 million in 2013 due to initial public offering (IPO) in October 2014. As of September 2015, the company’s debt to capitalization ratio was relatively low at 44.2%. Under TRIS Rating’s base case, the leverage level is expected to reach 65%-70% again if the company executes its full investment plan.
TSE plans to increase its contracted capacity by 180 MW to 246.5 MW over the next three years. The total investment is estimated at about Bt14,000 million. Currently, TSE’s on-hand projects are 23-MW solar farms in Japan. All existing projects in Japan are expected to start operations within the first half of 2017.
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