TRIS Rating affirms the company rating on Ratchaburi Electricity Generating Holding PLC (RATCH) at “AAA”. The rating reflects RATCH’s position as the largest private power producer in Thailand, its predictable cash flows from long-term power purchase agreements (PPAs), and the strong relationship RATCH has with the Electricity Generating Authority of Thailand (EGAT). The rating also takes into consideration its conservative investment plans and strong financial position.
KEY RATING CONSIDERATIONS
Largest private power producer in Thailand
RATCH is the largest power producer in Thailand. As of May 2018, RATCH had 6,624 megawatts (MW) of equity capacity (power-generating capacity based on the percentage ownership of each power plant) in operation, of which 5,866 MW were connected with Thai power grid.
RATCH’s equity capacity will increase to 7,009 MW in 2020 when it completes projects in pipeline such as solar and wind farms in Australia and the Xe-Pian Xe-Namnoy project in the Lao People’s Democratic Republic (Lao PDR).
Predictable cash flow
Approximately 87% of RATCH’s equity capacity is covered by the PPAs with EGAT (rated “AAA” by TRIS Rating). The PPAs contain pricing formula structured on a pay-if-available basis. With this basis, the PPAs provide RATCH with stable cash flows as long as the company maintains its power plants in accordance with PPA targets and keeps the plants ready for EGAT’s dispatch instruction.
Most of RATCH’s plants have reached the plant availability target every year for the last five years. The Hongsa power plant, one of RATCH’s main power plants, shows an improving trend after resolving technical issues in the past two years. The PPAs also contain mechanisms whereby fuel costs are passed through to EGAT. As a result, cash flow has been stable and predictable.
Strong relationship with EGAT
RATCH has a strong relationship with EGAT in terms of shareholding structure and plant operation. EGAT is a major shareholder of RATCH. It has owned 45.0% of RATCH since the inception of RATCH in 2000. EGAT also operates RATCH’s main power plants, such as the Ratchaburi plant, the Hongsa plant, and the Nam Ngum 2 plant, under operation and maintenance agreements. EGAT is also the major customer of RATCH’s power plants under independent power producer (IPP) and small power producer (SPP) schemes. EGAT’s strong credit profile mitigates counter-party risk for RATCH.
Solid cash flow
TRIS Rating forecasts the company’s earnings before interest, tax, depreciation and amortization (EBITDA) to range from Bt11 billion to Bt13 billion per year during 2018-2020, despite a drop in revenue from the Ratchaburi plant, an artifact of the way the PPA is structured.
Equity income from investments in other power plants will offset the decline in revenue from the Ratchaburi plant. RATCH has equity investments in many power projects, such as the Hongsa plant, the Xe-Pain Xe-Namnoy plant, and the SPP cogeneration power projects. These investments will contribute about Bt3.5-Bt4.0 billion in shares of profits per year during 2018-2020. TRIS Rating estimates RATCH’s dividend income from the equity investments at about Bt2.0-Bt3.0 billion per year during 2018-2020.
Low leverage
TRIS Rating believes RATCH will maintain its strong capital structure as it pursues growth opportunities. At the end March 2018, the company’s total debt was Bt27 billion and the total debt to capitalization ratio was 30%. Investment plans through 2020, including capital expenditures and equity investments, are forecast to be about Bt17 billion. Its capital structure is strong enough to support additional investments of about Bt10 billion spanning 2018-2020.
Ample liquidity
RATCH’s has ample liquidity. The company’s sources of funds comprise cash on hand of Bt13.2 billion and an undrawn credit facility of about Bt46.2 billion as of the end of March 2018. RATCH’s funds from operations (FFO) over the next 12 months are forecast to be about Bt8 billion. The sources of funds are sufficient to cover the uses. Debt coming due over the next 12 months amount to Bt2.4 billion plus about Bt9 billion in capital expenditures and equity investment over the next 12 months.
RATING OUTLOOK
The “stable” outlook reflects our expectation that RATCH will continue to receive reliable cash flows from the power projects secured with long-term PPAs. TRIS Rating expects RATCH’s debt to capitalization ratio to stay below 35%, taking into account RATCH’s growth strategy and investment plans.
RATING SENSITIVITIES
The credit rating downside case may occur if RATCH’s financial leverage increases dramatically due to any large scale, debt-funded acquisitions.
COMPANY OVERVIEW
RATCH is a holding company focused on power projects and related businesses. The company was established in 2000 to purchase the Ratchaburi power plant from EGAT. RATCH was listed on the Stock Exchange of Thailand (SET) in 2000. EGAT remains the company’s major shareholder with a 45.0% stake.
As of May 2018, RATCH’s aggregate equity capacity of power projects was 7,385 MW. About 6,624 MW is in operation while the rest (761 MW) is in the development and construction phases. In addition, RATCH invests 10.0% stakes in two mass rapid transit projects in Bangkok: the Pink Line and the Yellow Line.
As of May 2018, RATCH owned 13% of Thailand’s installed capacity. RATCH is the largest power generator in Thailand with an equity capacity of 5,866 MW, connected with the Thai power grid.
Ratchaburi Electricity Generating Holding PLC (RATCH)
Company Rating: AAA
Rating Outlook: Stable