TRIS Rating affirms the company rating on TPI Polene Power PLC (TPIPP) and the issue ratings on its outstanding senior unsecured debentures at “BBB+” with a “positive” outlook. At the same time, TRIS Rating assigns a rating of “BBB+” on TPIPP’s newly proposed issue of up to Bt3 billion in senior unsecured debentures. The company will use the proceeds for new investments.
The ratings continue to reflect TPIPP’s robust cash flows from its power business backed by power purchase agreements (PPAs) with the Electricity Generating Authority of Thailand (EGAT), with high profitability from adders and a competitive fuel cost from refuse-derived fuel (RDF) and waste heat. However, the ratings are partially offset by the relatively high operational risks of RDF-fired power plants and rising leverage from new investments.
TPIPP is a subsidiary of TPIPL (rated “BBB+/Positive” by TRIS Rating). On a stand-alone basis, TPIPP’s company rating is assigned at “A”, suggesting a stronger credit profile than TPIPL. However, TPIPP’s rating is capped by TPIPL’s rating at “BBB+” according to our group rating methodology.
All of TPIPP’s power plants, with total capacity of 440 megawatts (MW), are in operation and expected to generate steady EBITDA (earnings before interest, tax, depreciation, and amortization) of approximately Bt6.5 billion per annum from 2020 onwards.TPIPP’s outstanding debt is likely to rise in the near term due to its participation in bidding on two waste-to-energy power projects in Bangkok and the development of an industrial estate in the southern part of Thailand. However, TPIPP’s strong cash flow and low debt on its balance sheet should be able to support its new investments. TRIS Rating forecasts the debt to EBITDA ratio to stay below 2 times over the next three years.
RATING OUTLOOK
The “positive” outlook on TPIPP reflects an expected recovery of the parent’s financial strength after TPIPP’s new power plants are all fully operational.
We expect TPIPP’s status as a core subsidiary of TPIPL to maintain. Given the parent-subsidiary relationship, any change in TPIPL’s credit ratings will affect TPIPP’s ratings.
RATING SENSITIVITIES
A rating upgrade could occur if TPIPP’s performance materially improves, thus helping to strengthen the financial profile of the Group. Conversely, a downgrade in the ratings could occur if the plants’ performance is weaker-than-expected or if the company makes excessive debt-financed investments, leading to materially enlarge consolidated debts of TPIPL. The ratings or outlook could also be revised downward if TRIS Rating downgrades TPIPL’s ratings.
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