TRIS Rating Co., Ltd. has upgraded the rating of Khanom Electricity Generating Co., Ltd.'s (KEGCO) Bt7,500 million senior secured debentures to "AA-" from "A+". The upgrade is based on KEGCO's demonstrated ability to consistently provide better-than-expected operating performance. The rating also takes into consideration KEGCO's solid project fundamentals and its strategic position as a major base load generator in Thailand's southern region. However, uncertainty about the impact of the government's planned reform of power industry partially offsets these strengths. While The "stable" outlook reflects TRIS Rating's expectation that KEGCO will continue to receive stable cash flow from electricity sales from KEGCO's power plants. Khanom power plants are expected to continue to achieve their performance targets while KEGCO's financial coverage is expected to remain at an acceptable level.
TRIS Rating reported that KEGCO was established in 1995 to buy the 824-MW Khanom power plant from the Electricity Generating Authority of Thailand (EGAT) under EGAT's privatization plan. KEGCO is a wholly-owned subsidiary of the Electricity Generating PLC (EGCO), which is 25% owned by EGAT. The power station is located in Nakorn Sri Thammarat province and consists of two barge-mounted thermal plants (150 MW) and a Combined Cycle Gas Turbine (674 MW).
TRIS Rating said that the 15- to 20-year power purchase agreement (PPA) between EGAT and KEGCO is well-structured. The pay-if-available payment commitment mitigates KEGCO's demand risk while the cost-plus basis tariff structure reduces its price risk. Competitive advantages stem from its key location in an area with stable demand for electricity and its base load generation, which supplies about 60% of total demand in the southern region. KEGCO's operating performance has been satisfactory. Its availability and plant heat rates since the start of operations have 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.
KEGCO's 2003 financial performance was satisfactory because the company maintained its power plant availability factor as high as 95%. Its funds from operations have been stabilized in the range of Bt1,900-Bt2,100 million per year during the last five years, while its debt has been amortized to Bt10,691 million as of December 2003. Its total debt to capitalization has continuously improved from 72% in 2000 to 63% at the end of 2003. KEGCO's debt reserve accounts had a combined value of Bt2,649 million by year-end 2003. KEGCO's debt service coverage ratio of 1.75 times in 2003 was far higher than its minimum requirement of 1.1 times. In addition, legal provisions and strict financial covenants are well protected the interest of debentureholders. Since EGAT is the sole purchaser, KEGCO's credit rating is constrained by EGAT's credit quality. Developments in the privatization of EGAT and the new scheme of Electricity Supply Industry raise concerns about EGAT's future position and regulatory support for the existing PPA contracts, TRIS Rating said. - End
Khanom Electricity Generating Co., Ltd. (KEGCO) Issue Rating: KEGCO#1: Bt7,500 million senior secured debentures due 2011 Upgraded to AA- from A+ Rating Outlook: Stable