Thai Rating and Information Services Co., Ltd. (TRIS) announced Tuesday 31 July 2001 that it has affirmed a "A+" rating of Khanom Electricity Generating Co., Ltd.'s (KEGCO) Bt7,500 million senior secured debentures. The rating reflects KEGCO's solid project fundamentals, its strategic position as a major base load generator in the southern area and its proven operational track record. However, its highly leveraged balance sheet as well as uncertainty about the planned deregulation of the power industry partially offset these strengths.
According to TRIS's report, KEGCO is a wholly-owned subsidiary of the Electricity Generating PLC (EGCO), an affiliated company of the Electricity Generating Authority of Thailand (EGAT). The establishment of EGCO and KEGCO are among the initial steps in the privatization of EGAT. KEGCO acquired the Bt20,413 million Khanom power project from EGAT in 1996 with 76% debt financing. Its power station has total capacity of 824 MW. The power purchase agreement (PPA) between EGAT and KEGCO is well-structured. Its 15- to 20-year contract protects KEGCO's from market risk. The pay-if-available payment system mitigates KEGCO's demand risk while the cost-plus basis tariff structure reduces its price risk. The average availability target of 86% is attainable given the technology employed and the age of the power plant. The availability allowance of +/-450 hours per annum and the penalty cap for reduced availability limit KEGCO's risk of revenue loss. The revenue adjustment mechanism limits foreign exchange rate risk and inflation risk.
KEGCO's 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. Its availability and plant heat rates since the start of the operation have successfully met performance targets specified in the PPA. Its proven technology combined with its experienced ex-EGAT staff reduce technology and operating risks. A pass-through component in the energy payment structure limits its exposure to fuel risk. The rating also reflects support from EGAT, a major shareholder in EGCO, KEGCO's parent company. Since EGAT is the sole purchaser of KEGCO's power, EGAT's credit quality will be a ceiling for the credit rating of KEGCO. Developments in the privatization of EGAT and the plan for the Thailand Power Pool and Electricity Supply Industry raise concerns about EGAT's future position and regulatory support for the existing PPA contracts, TRIS said.
TRIS also reported that KEGCO's high leverage at 72% as of December 2000 is partially mitigated by the company's predictable cash flow which comes mainly from availability payments. KEGCO debt service coverage ratio (DSCR) during 1997-2000 averaged 1.36 times, and its debt reserve accounts had a combined value of Bt2,995 million by 2000. In addition, legal provisions and strict financial covenants provide a cushion for its debentureholders.
Khanom Electricity Generating Co., Ltd. (KEGCO) Issue Rating KEGCO#1: Bt7,500 million senior secured debentures due 2011 Affirmed at A+
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According to TRIS's report, KEGCO is a wholly-owned subsidiary of the Electricity Generating PLC (EGCO), an affiliated company of the Electricity Generating Authority of Thailand (EGAT). The establishment of EGCO and KEGCO are among the initial steps in the privatization of EGAT. KEGCO acquired the Bt20,413 million Khanom power project from EGAT in 1996 with 76% debt financing. Its power station has total capacity of 824 MW. The power purchase agreement (PPA) between EGAT and KEGCO is well-structured. Its 15- to 20-year contract protects KEGCO's from market risk. The pay-if-available payment system mitigates KEGCO's demand risk while the cost-plus basis tariff structure reduces its price risk. The average availability target of 86% is attainable given the technology employed and the age of the power plant. The availability allowance of +/-450 hours per annum and the penalty cap for reduced availability limit KEGCO's risk of revenue loss. The revenue adjustment mechanism limits foreign exchange rate risk and inflation risk.
KEGCO's 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. Its availability and plant heat rates since the start of the operation have successfully met performance targets specified in the PPA. Its proven technology combined with its experienced ex-EGAT staff reduce technology and operating risks. A pass-through component in the energy payment structure limits its exposure to fuel risk. The rating also reflects support from EGAT, a major shareholder in EGCO, KEGCO's parent company. Since EGAT is the sole purchaser of KEGCO's power, EGAT's credit quality will be a ceiling for the credit rating of KEGCO. Developments in the privatization of EGAT and the plan for the Thailand Power Pool and Electricity Supply Industry raise concerns about EGAT's future position and regulatory support for the existing PPA contracts, TRIS said.
TRIS also reported that KEGCO's high leverage at 72% as of December 2000 is partially mitigated by the company's predictable cash flow which comes mainly from availability payments. KEGCO debt service coverage ratio (DSCR) during 1997-2000 averaged 1.36 times, and its debt reserve accounts had a combined value of Bt2,995 million by 2000. In addition, legal provisions and strict financial covenants provide a cushion for its debentureholders.
Khanom Electricity Generating Co., Ltd. (KEGCO) Issue Rating KEGCO#1: Bt7,500 million senior secured debentures due 2011 Affirmed at A+
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