TRIS Rating affirms the company rating and the ratings of existing senior unsecured debentures of Banpu PLC (BANPU) at “A+”. At the same time, TRIS Rating also assigns the rating of “A+” to BANPU’s proposed issue of up to US$50 million in senior unsecured debentures.
The ratings of BANPU reflect the company’s leading position in the coal industry within the Asia-Pacific region, diverse customer base and geographic diversification of coal reserves, and reliable stream of income from the power business. However, the ratings are partially offset by the cyclicality of coal prices, slow demand for coal driven in part by the efforts to reduce emissions worldwide, as well as the uncertainties concerning coal-related policies implemented by the government of China.
For the first three months of 2018, BANPU’s revenue grew by 11% year-on-year (y-o-y) to US$700 million, mainly driven by coal price. BANPU’s average coal selling price increased by 23% y-o-y to about US$80.9 per tonne, while sales volume decreased by 15% to 7.3 million tonnes due to lower coal production caused by rain and geological conditions. BANPU’s operating margin declined to 21.8%, compared with 24.6% for the first three months of 2017, caused by the lower coal production and higher fuel price for the power business. However, the earnings before interest, tax, depreciation and amortization (EBITDA) interest coverage ratio of 5.9 times and the ratio of funds from operation (FFO) to total debts of 10.2% were in line with our estimation of 4-5 times for the EBITDA interest coverage ratio and 10%-15% for the FFO to total debt ratio during 2018-2020.
RATING OUTLOOK
The “stable” outlook reflects our expectation that BANPU will maintain its leading position in the coal industry. Dividends from the steady power business will provide some cushion for the company’s coal business. BANPU’s financial discipline, prudent cash management, plus financial flexibility, will help BANPU weather the volatile conditions of the coal market.
RATING SENSITIVITIES
An upside for BANPU’s ratings may occur if the company could improve its financial profile significantly or exhibit more earnings stability. A rating downgrade will emerge if coal prices tumble and cash flow substantially weakens below our expectations. Any debt-funded investments, which could worsen the company’s capital structure and deteriorate cash flow protection for an extended period, would be another factor supporting a downgrade.
TRIS Rating Co., Ltd./www.trisrating.com Contact: santaya@trisrating.com, Tel: 0-2098-3000/Silom Complex Building, 24th Floor, 191 Silom Road, Bangkok 10500, Thailand ? Copyright 2018, TRIS Rating Co., Ltd. All rights reserved. Any unauthorized use, disclosure, copying, republication, further transmission, dissemination, redistribution, or storing for subsequent use for any purpose, in whole or in part, in any form or manner or by any means whatsoever, by any person, of the credit rating reports or information is prohibited, without the prior written permission of TRIS Rating Co., Ltd. The credit rating is not a statement of fact or a recommendation to buy, sell or hold any debt instruments. It is an expression of opinion regarding credit risks for that instrument or particular company. The opinion expressed in the credit rating does not represent investment or other advice and should therefore not be construed as such. Any rating and information contained in any report written or published by TRIS Rating has been prepared without taking into account any recipient’s particular financial needs, circumstances, knowledge and objectives. Therefore, a recipient should assess the appropriateness of such information before making an investment decision based on this information. Information used for the rating has been obtained by TRIS Rating from the company and other sources believed to be reliable. Therefore, TRIS Rating does not guarantee the accuracy, adequacy, or completeness of any such information and will accept no liability for any loss or damage arising from any inaccuracy, inadequacy or incompleteness. Also, TRIS Rating is not responsible for any errors or omissions, the result obtained from, or any actions taken in reliance upon such information. All methodologies used can be found at http://www.trisrating.com/en/rating_information/rating_criteria.html