TRIS Rating affirms the company rating on TPI Polene Power PLC (TPIPP) and the ratings on its outstanding senior unsecured debentures at ?BBB+?, with a ?stable? outlook. At the same time, TRIS Rating assigns the rating of ?BBB+? to TPIPP?s newly proposed issue of up to THB6.0 billion senior unsecured debentures. The company intends to use the proceeds to refinance maturing debentures and support investment in new waste-to-energy (WTE) power plants.
The ratings mirror TPIPP?s stable cash flows, backed by power purchase agreements (PPAs) with the Electricity Generating Authority of Thailand (EGAT), and its competitive fuel costs. Also, the ratings are impacted by the gradual phase-out of additional tariffs (Adder). The ratings also take into account the higher financial leverage to support new project investments and investment risks associated with the Special Economic Zone (SEZ) project development.
TPIPP?s company and issue ratings are capped by the ratings on TPI Polene PLC (TPIPL), which are rated at ?BBB+/Stable? by TRIS Rating. The rating cap reflects TPIPP?s status as core subsidiary, the strong parent-subsidiary relationship, and a high level of business integration between the two entities. We assess TPIPP?s stand-alone credit profile (SACP) at the level of ?a?, reflecting a stronger credit profile than TPIPL?s.
We project TPIPP?s earnings and cash flows to continue to be negatively impacted by the exceptionally high coal price and expirations of adders this year. TPIPP?s earnings before interest, taxes, depreciation, and amortization (EBITDA) dropped by 19.4% to THB1.1 billion in the first quarter of 2022, from THB1.4 billion in the same period last year. However, the impact will be partially offset by higher fuel adjustment charge (Ft) in the second half of this year, and the expected benefits from the coal replacement program the company is implementing.
We expect TPIPP?s profits to decline during 2022-2023 before recovering when new WTE projects are up and fully running in 2024 onwards. TPIPP?s earning will rely on its ability to secure new power capacity as the adder of the largest 90-megwatts PPA ends in 2025.
We project that TPIPP?s financial leverage will gradually rise, given its planned capital expenditures and investments. These include the construction of two WTE power plants in Songkhla and Nakorn Ratchasima, a refuse-derived fuel (RDF) capacity expansion, and coal-replacement programs. Additionally, TPIPP has stated its strong intention to participate in biddings for new WTE PPAs nationwide. We view that TPIPP will benefit from these investments over the long term.
The ratings continue to factor in the uncertainty in the SEZ project, which is currently on hold. TPIPP already spent about THB11 billion on land procurement in Chana district. However, the company?s management believes the project must be continued as it is a national security project and has already been approved by the cabinet.
RATING OUTLOOK
The ?stable? outlook embeds our expectation that TPIPP?s power plant operations will continue to generate solid cash flows over the long term. We also expect the company will successfully secure new power projects to partially counterbalance the earnings contractions after adder expirations, and that TPIPP?s operating performance and financial leverage will be in line with our forecast. We expect TPIPP?s status as a core subsidiary of TPIPL will remain unchanged.
RATING SENSITIVITIES
A rating upgrade is unlikely in the near term since we expect the company?s financial profile will weaken from adder expirations and heightening financial leverage during the construction of new WTE power plants.
Conversely, a rating downgrade could occur if TPIPP?s operating performance is significantly worse than our forecast and/or if the company engages in sizable debt-financed investments, which result in significant deterioration in the group?s financial profile. The ratings or outlook could also be revised downward if we downgrade TPIPL?s ratings.
RELATED CRITERIA
- Key Financial Ratio and Adjustments for Corporate Issuers, 11 January 2022
- Issue Rating Criteria, 15 June 2021
- Group Rating Methodology, 13 January 2021
- Rating Methodology ? Corporate, 26 July 2019
TPI Polene Power PLC (TPIPP)
Company Rating: BBB+
TPIPP22NA: THB4,000 million senior unsecured debentures due 2022 BBB+ TPIPP23DA: THB3,000 million senior unsecured debentures due 2023 BBB+ TPIPP247A: THB4,000 million senior unsecured debentures due 2024 BBB+ TPIPP262A: THB4,523.6 million senior unsecured debentures due 2026 BBB+ Up to THB6,000 million senior unsecured debentures due within 7 years BBB+ Rating Outlook: Stable TRIS Rating Co., Ltd./www.trisrating.com Contact: santaya@trisrating.com, Tel: +66 0 2 098 3000/Silom Complex Building, 24th Floor, 191 Silom Road, Bangkok 10500, Thailand ? Copyright 2022, 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 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 www.trisrating.com/rating-information/rating-criteria