TRIS Rating Co., Ltd. has affirmed the company rating of Eastern Water Resources Development and Management PLC (EASTW) at “A+” with “stable” outlook. The rating reflects EASTW’s strengths as the sole raw-water provider with a comprehensive pipeline network in the Eastern Seaboard, favorable growth prospects for the tap water business, and the company’s strong financial profile. The rating is further supported by the high barriers to entry, EASTW’s predictable and stable cash flow, and its low operating risk. EASTW’s strengths are partially constrained by the large capital requirements, the unpredictable effects of climate change, and government regulations on water resources management, which are not yet well defined.
The “stable” outlook reflects the expectation that EASTW will continue to sustain its cash flow generation capability and that its business operations will not be adversely impacted by any shifts in government policies. EASTW is also expected to expand its business without significantly increasing its financial leverage.
TRIS Rating reported that EASTW redeemed its Bt2.5-billion debentures in October 2007 at the direction of the bondholders after the company breached its debentures. The breach stemmed from the default of its 50%-owned subsidiary, Eastern Hobas Pipe Co., Ltd. (EHP), which triggered a cross-default to EASTW’s covenants. The situation did not result in an immediate impact on EASTW’s credit profile because it did not reflect EASTW’s unwillingness to service its debt obligations. In fact, the company had smoothly secured all necessary financing to repay its debentures on schedule. However, the circumstance did cause a certain level of negative sentiment for some investors. To be more prudent, the company should have reached a compromise with lenders before the technical defaults were triggered.
TRIS Rating said that EASTW was founded in 1992 and became the sole raw water operator in seven provinces in the Eastern Seaboard following a Cabinet resolution to privatize development and management of raw water distribution systems. The company leases and operates four water pipeline networks, previously overseen by the Ministry of Finance (MOF), serving Chonburi, Rayong, and Chachoengsao provinces. In addition, the company is engaged in tap water operations in nine service areas. For the fiscal year ending September 2007, EASTW’s total revenue was Bt2.4 billion. Raw water sales accounted for 63% of total revenue, while tap water services represented 20% of the total.
For the fiscal year 2006/2007, EASTW’s raw water sales grew 13% from a year earlier, due to increases in water volumes sold and water tariffs. The company’s business fundamentals are strong as raw water demand of industrial users in the Eastern Seaboard is highly stable. Given its extensive networks and the capital intensiveness of the business, EASTW is unlikely to face a threat from any large competitor in its raw water services for the foreseeable future. EASTW’s ability to efficiently manage and allocate water from various sources to its clients is expected to improve after completion of the Prasae-Klongyai project. The prospects for tap water services remain bright due to the likelihood that new tap water projects will come up for bids.
EASTW’s solid financial performance is due to a well-protected business that has reliable and predictable sources of income. Its internal cash generation had steadily rose during the last six years. Funds from operations (FFO) in 2007 was Bt791 million, compared with Bt437 million in 2002. The company’s debt service ability remains strong. As of fiscal year end 2006/2007, cash flow protection, as measured by the ratio of FFO to total debt, was 17.4%. Operating margin before depreciation and amortization remained strong at 45.6%. The ratio of total debt to capitalization was 49.1%. The Bt1,115 million cash fromthe exercise of warrants in November 2007 will help reduce the leverage ratio to around 40% in 2008. The expected rise in EASTW’s debts to finance its planned capital investments will continue to weigh on its credit profile. EASTW anticipates capital spending to average about Bt1-Bt1.5 billion a year over the next few years, lower than the Bt3.4 billion it spent in fiscal year 2005/2006, said TRIS Rating. -- End
Eastern Water Resources Development and Management PLC (EASTW)
Company Rating: Affirmed at A+
Rating Outlook: Stable
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Copyright 2008, 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 in part, in any form or manner or by any means whatsoever, by any person, of the credit rating reports or information is prohibited. 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.
The “stable” outlook reflects the expectation that EASTW will continue to sustain its cash flow generation capability and that its business operations will not be adversely impacted by any shifts in government policies. EASTW is also expected to expand its business without significantly increasing its financial leverage.
TRIS Rating reported that EASTW redeemed its Bt2.5-billion debentures in October 2007 at the direction of the bondholders after the company breached its debentures. The breach stemmed from the default of its 50%-owned subsidiary, Eastern Hobas Pipe Co., Ltd. (EHP), which triggered a cross-default to EASTW’s covenants. The situation did not result in an immediate impact on EASTW’s credit profile because it did not reflect EASTW’s unwillingness to service its debt obligations. In fact, the company had smoothly secured all necessary financing to repay its debentures on schedule. However, the circumstance did cause a certain level of negative sentiment for some investors. To be more prudent, the company should have reached a compromise with lenders before the technical defaults were triggered.
TRIS Rating said that EASTW was founded in 1992 and became the sole raw water operator in seven provinces in the Eastern Seaboard following a Cabinet resolution to privatize development and management of raw water distribution systems. The company leases and operates four water pipeline networks, previously overseen by the Ministry of Finance (MOF), serving Chonburi, Rayong, and Chachoengsao provinces. In addition, the company is engaged in tap water operations in nine service areas. For the fiscal year ending September 2007, EASTW’s total revenue was Bt2.4 billion. Raw water sales accounted for 63% of total revenue, while tap water services represented 20% of the total.
For the fiscal year 2006/2007, EASTW’s raw water sales grew 13% from a year earlier, due to increases in water volumes sold and water tariffs. The company’s business fundamentals are strong as raw water demand of industrial users in the Eastern Seaboard is highly stable. Given its extensive networks and the capital intensiveness of the business, EASTW is unlikely to face a threat from any large competitor in its raw water services for the foreseeable future. EASTW’s ability to efficiently manage and allocate water from various sources to its clients is expected to improve after completion of the Prasae-Klongyai project. The prospects for tap water services remain bright due to the likelihood that new tap water projects will come up for bids.
EASTW’s solid financial performance is due to a well-protected business that has reliable and predictable sources of income. Its internal cash generation had steadily rose during the last six years. Funds from operations (FFO) in 2007 was Bt791 million, compared with Bt437 million in 2002. The company’s debt service ability remains strong. As of fiscal year end 2006/2007, cash flow protection, as measured by the ratio of FFO to total debt, was 17.4%. Operating margin before depreciation and amortization remained strong at 45.6%. The ratio of total debt to capitalization was 49.1%. The Bt1,115 million cash fromthe exercise of warrants in November 2007 will help reduce the leverage ratio to around 40% in 2008. The expected rise in EASTW’s debts to finance its planned capital investments will continue to weigh on its credit profile. EASTW anticipates capital spending to average about Bt1-Bt1.5 billion a year over the next few years, lower than the Bt3.4 billion it spent in fiscal year 2005/2006, said TRIS Rating. -- End
Eastern Water Resources Development and Management PLC (EASTW)
Company Rating: Affirmed at A+
Rating Outlook: Stable
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Copyright 2008, 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 in part, in any form or manner or by any means whatsoever, by any person, of the credit rating reports or information is prohibited. 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.