TRIS Rating Co., Ltd. has affirmed the rating of the Bt7,500 million senior secured debentures of Khanom Electricity Generating Co., Ltd. (KEGCO) at "AA-" with "stable" outlook. The rating reflects the company's solid project fundamentals, its strategic position as a major base load generator in Thailand's southern region and its proven operational track record. However, these strengths are partially offset by uncertainty about the deregulation of the power industry.
The "stable" outlook reflects TRIS Rating's expectation that KEGCO will continue to receive stable cash flow from electricity sales generated by its power plants. KEGCO's power plants are expected to continue to achieve their performance targets.
TRIS Rating reported that KEGCO was established in 1995 to buy the 824-MW Khanom power plant from EGAT PLC (EGAT) (formerly the Electricity Generating Authority of Thailand) under EGAT's privatization plan. KEGCO is a wholly-owned subsidiary of the Electricity Generating Company PLC (EGCO), which is 25% owned by EGAT. The power station is located in Nakorn Sri Thammarat province in southern Thailand. It 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 KEGCO's price risk. Competitive advantages stem from the company's 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. The proven technology combined with experienced ex-EGAT staff reduces technology and operating risks. A pass-through component in the energy payment structure limits KEGCO's exposure to fuel risk.
Since EGAT is the sole purchaser, TRIS Rating sees KEGCO's credit rating is constrained by EGAT's credit quality. Developments in the privatization of EGAT and the new scheme of the electricity supply industry raise concerns about EGAT's future position and regulatory support for the existing PPA contracts. KEGCO's 2004 financial performance was satisfactory because the company maintained its power plant availability factor as high as 90.4%. Electricity sales rose by 11.3%, from Bt3,796 million in 2003 to Bt4,224 million in 2004. The level of outstanding debt has fallen to Bt9,268 million as of December 2004. Its total debt to capitalization ratio has continuously improved from 63.4% in 2003 to 61.5% at the end of 2004. KEGCO's debt service coverage ratio of 2.26 times in 2004 was far higher than its minimum requirement of 1.1 times, said TRIS Rating. - End
Khanom Electricity Generating Co., Ltd. (KEGCO) Issue Rating: KEGCO#1: Bt7,500 million senior secured debentures due 2011 Affirmed at AA- Rating Outlook: Stable