TRIS Rating assigns the company rating on Global Power Synergy PLC (GPSC) at “AA-” with “stable” rating outlook. The rating reflects the company’s position as the second largest private power producer in Thailand, highly predictable cash flow from its long-term power purchase agreements (PPA) with the Electricity Generating Authority of Thailand (EGAT) and the PTT Group, and the company’s prudent financial policy. The rating also reflects GPSC’s important role as a flagship company in the power business under the PTT Group. The rating takes into consideration the company’s rising debt level following the acquisition of Glow Energy PLC (GLOW).
KEY RATING CONSIDERATIONS
Second largest private power producer in Thailand
After the acquisition of GLOW, GPSC’s power portfolio, in proportion to its ownership or equity capacity, stood at 5,026 megawatts (MW). This figure makes GPSC the second largest private power producer in Thailand, behind the capacity of 6,900 MW of RATCH Group PLC (RATCH).
GPSC’s gas-fired power plants account for the largest portion of around 3,400 MW, or 68% of total equity capacity. Coal-fired power plants follow with a capacity of 814 MW, or 16% of total equity capacity. The remaining 812 MW is made up by renewable power plants and an Energy Recovery Unit (ERU) power plant.
Well-diversified power portfolio
GPSC owns a well-diversified portfolio of power generation assets. At the end of June 2019, GPSC owned 29 power plants in Thailand and abroad. GPSC’s total portfolio includes six power plants under the Independent Power Producer (IPP) scheme. The six IPP power plants have a combined capacity of 2,439 MW, which accounts for 49% of GPSC’s total equity capacity. GPSC also has 11 Small Power Producer (SPP) and cogeneration power plants with a combined capacity of 2,192 MW, accounting for 43% of total equity capacity. The remaining equity capacity of 8% is spread among 11 renewable power plants and one ERU power plant.
Approximately 97% of GPSC’s conventional power plants are located in the eastern region of Thailand, in the Map Ta Phut (MTP) and the Eastern Economic Corridor (EEC) areas. The renewable power plants are located in many countries, such as, Thailand, the Lao People’s Democratic Republic (Lao PDR), and Japan.
Predictable cash flow backed by long-term PPAs
We expect GPSC to continue generating solid cash flow supported by long-term contract with EGAT and reputable industrial users (IUs) under the PTT Group. GPSC sells about 66% of its equity capacity to EGAT under the IPP and SPP schemes. The terms of a typical PPA with EGAT covers 21-25 years. For the IPP scheme, GPSC receives the full amount of Availability Payment (AP) as long as the company has maintained the availability of the plants as agreed in the PPAs, even if EGAT has not dispatched from the plants. The PPA of the SPP scheme is slightly different; EGAT agrees to dispatch not less than 80% of the contracted capacity based on operating hours. Both IPP and SPP schemes also contain a fuel price pass-through mechanism. GPSC also sells electricity to EGAT under the non-firm SPP scheme to help manage power plant loads at optimum efficiency with no obligation to dispatch.
GPSC also has PPAs and Steam Purchase Agreements (SPA) with many IUs in the MTP area. Approximately 90% of IUs are under the PTT Group. The PPAs and SPAs cover 5-15 years. The contracts with IUs also specify minimum off-take amounts. The tariff generally carries a fuel adjustment charge, or Ft charge, to reflect changes in fuel prices.
Planned operating integration in MTP to enhance operating efficiency
GPSC’s portfolio is forecast to increase to 5,026 MW in 2019, from 1,977 MW in 2018, resulting from the acquisition of GLOW. GPSC will become the largest power producer in the eastern region of Thailand. In addition to portfolio enlargement, GPSC will benefit from GLOW’s experiences and expertise in managing diverse power portfolio. Due to the adjacent locations of the power plants of GPSC and GLOW, GPSC plans to integrate the operating and maintenance of all plants and connect both transmission lines and steam pipelines in the MTP area to enhance operating efficiency.
Elevated leverage from the acquisition of GLOW
GPSC needs to spend around Bt134.5 billion to acquire a 100% stake of GLOW. For the first stage of acquisition, GPSC used a bridging loan of Bt99.5 billion and loans from related parties of Bt35 billion to fund the transaction.
For its long-term financing plan, GPSC will replace the bridging loan by equity financing of Bt74 billion (55% of deal size) and operating cash flow of Bt10 billion. The remainder amounting to Bt50.5 billion will be replaced by debenture issuance and long-term loans. Based on these assumptions, GPSC’s adjusted net debt is forecast to reach Bt90 billion by the end of 2019. According to GPSC’s plan, the ratio of debt to earnings before interest, tax, depreciation and amortization (EBITDA) is to improve to below 4.0 times on sustainable basis from a peak of 5.5 times by the end of 2019.
Strong support from PTT Group
We expect the PTT Group to continue providing support to GPSC as the flagship company in the power business under the group. PTT PLC (PTT) has recently announced that PTT will subscribe all remaining shares of the new equity right offerings to support the acquisition of GLOW. This announcement ensures that GPSC will receive a full amount of Bt74 billion from the equity issue and will support GPSC’s deleveraging plan.
BASE-CASE ASSUMPTIONS
• Revenue is forecast at Bt63-Bt75 billion during 2019-2022.
• EBITDA is forecast to be Bt16-Bt21 billion during 2019-2022. The EBITDA margin is forecast to stay around 26%-28%.
• New equity issue will be Bt74 billion in 2019.
• Total capital expenditure is forecast at Bt7-Bt11 billion per year in 2019-2022, including capital expenditure for SPP replacement and the ERU project.
RATING OUTLOOK
The “stable” outlook reflects our expectation that the plants in operation will continue to run smoothly and generate cash as forecast. In addition, we also expect the company to deleverage its capital structure as planned.
RATING SENSITIVITIES
A rating upgrade could occur if GPSC can smoothly integrate the power portfolio with GLOW as planned. Conversely, a rating downgrade could occur if the cash flow from operation is materially lower than expected or if the capital structure weakens significantly due to excessive debt-funded investments.
COMPANY OVERVIEW
GPSC was founded on 20 January 2013 through the amalgamation of PTT Utility Co., Ltd. (PTTUT) and Independent Power (Thailand) Co., Ltd. (IPT) as the flagship company of the power business of the PTT Group. Following its establishment, GPSC gradually bought power plant shares from other companies in the PTT Group.
GPSC was listed on the Stock Exchange of Thailand (SET) in 2015. As of February 2019, the PTT Group held around 75% of total shares while the rest held by public. Shareholdings under the PTT Group consists of 22.6% held by PTT, 22.7% held by PTT Global Chemical PLC (PTTGC), 8.9% held by Thaioil PLC (TOP), and 20.8% held by Thaioil Power Co., Ltd. (TP). In terms of the major ultimate shareholder, PTT held both directly and indirectly of 51% share of GPSC.
On 14 March 2019, GPSC acquired a 69.11% stake of GLOW from ENGIE Global Developments B.V. (ENGIE). GPSC announced an intention to make a tender offer for all of the remaining shares of GLOW in the second quarter of 2019 which GPSC could acquire a 95.25% stake of GLOW in total. GPSC planned to make a tender offer for the remainder of 4.75% share of GLOW and planned to delist GLOW within 2019.
After the acquisition, GLOW’s power portfolio of 2,771 MW had been added up in to GPSC’s pre-acquisition power portfolio of 2,256 MW, the combined capacity came up to 5,026 MW. As of 30 June 2019, GPSC had an operating equity capacity of 4,298 MW, consisting of IPP power plants of 2,118 MW, SPP of 2,114 MW, and renewable power plants of 66 MW.
RELATED CRITERIA
- Rating Methodology – Corporate, 26 July 2019
- Key Financial Ratios and Adjustments, 5 September 2018
- Group Rating Methodology, 10 July 2015
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