TRIS Reassigns KEGCO's Senior Secured Debentures at "A+"
Thai Rating and Information Services Co., Ltd. (TRIS) announced Tuesday 1 August 2000 that on 25 July 2000 it reassigned Khanom Electricity Generating Co., Ltd.'s (KEGCO) Bt7,500 million senior secured debentures due 2011 at "A+". The rating reflects TRIS's adoption of a national scale rating system that focuses exclusively on company and issue ratings in local currency and that is relevant only for comparison within the domestic market. Under the national scale rating system, which takes effect on 25 July 2000, the highest credit rating within the country is "AAA".
TRIS reported that the issue rating of KEGCO is based on its solid project fundamentals, its strategic position as a major base load generator in the southern area and its proficient management. However, KEGCO's high leverage balance sheet as well as uncertainty about the planned privatization of the power industry partially offset these strengths. TRIS also said that the power purchase agreement (PPA) between the Electricity Generating Authority of Thailand (EGAT) and KEGCO is well-structured. Its 15- to 20-year contracts limit KEGCO's demand and price risks. The pay-if-available payment system mitigates KEGCO's demand risk while the cost-plus basis tariff structure reduces its price risk. The rating also reflects support from EGAT, a major shareholder in Electricity Generating PLC, KEGCO's parent company. Since EGAT is the sole power purchaser of KEGCO, EGAT's credit quality has a significant influence on KEGCO's ability to service its debt. Developments in privatization and the plan for Thailand Power Pool and Electricity Supply Industry raise concerns about EGAT's future position and regulatory support for the existing PPA contracts.
The Bt20,413-million Khanom power project was acquired from EGAT in 1996 with 76% debt financing. The power station has total capacity of 824 MW. It consists of two barge-mounted thermal plants (units 1 and 2) and a Combined Cycle Gas Turbine (unit 3). Competitive advantages stem from its key location in an area with stable demand for electricity and its base load generation, which supplies about 72% of total demand in the Southern region. KEGCO's operating performance is satisfactory. Its availability and plant heat rates for the past three years have met performance targets specified in the PPA. Its proven technology combined with its experienced staff reduce technology and operating risks. A pass-through component in the energy payment structure limits its exposure to fuel risk.
As a non-recourse project, KEGCO's ability to repay its debt depends wholly on its revenue stream. This is secured by a well-defined PPA with EGAT that renders consistent and dependable cash flow, because almost 100% of KEGCO's revenues come from availability payments, which are based on power availability targets and not power delivery to EGAT. In addition, strict covenants on reserve accounts provide adequate cushion against improper distribution of project cash flow. An amendment to the PPA that stipulates a compensation structure for the availability payment for expenditures in foreign currency over a base rate of Bt28/US$ plus a 2.61% cushion structured in the tariff payment alleviate its exposure to foreign exchange risks. As of December 1999, KEGCO's debt service coverage ratio (DSCR) dropped to 1.27 times, which was lower than 1.33 times in 1997 and 1.49 times in 1998 because KEGCO set aside its foreign exchange reserve of Bt688 million to fully fund its reserve accounts. However, when these reserve accounts were included, its DSCR in 1999 was 2.43 times, an increase from 2.39 times in 1998.
Khanom Electricity Generating Co., Ltd. (KEGCO): Issue rating KEGCO#1: Bt7,500 million senior secured debentures due 2011 A+
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