TRIS Rating Co., Ltd. has affirmed the company rating of Glow Energy PLC (GLOW) and the ratings of GLOW’s guaranteed debentures at “A” with “stable” outlook. The ratings reflect GLOW’s reliable cash flow from long-term Power Purchase Agreements (PPAs) with the Electricity Generating Authority of Thailand (EGAT) and long-term contracts with a diverse group of industrial customers (ICs). Moreover, GLOW has a proven record of providing reliable electricity and other utilities to customers, and receives strong support from its major shareholder, GDF SUEZ Group. These strengths are partially offset by the concentration risk of ICs in the petrochemical industry which is facing a downturn. The ratings also take into consideration GLOW’s expansion and acquisition plans during the next three years, including both the Independent Power Producer (IPP) and the cogeneration businesses.
The “stable” outlook reflects GLOW’s reliable cash flow from its long-term PPAs and contracts with EGAT and ICs. Declining demand for electricity and utilities will be partly mitigated by the average 70% minimum take obligation with its customers. TRIS Rating expects GLOW to maintain its financial target to ensure the sufficient liquidity during the high leverage used to finance its expansion plan.
TRIS Rating reported that GLOW was founded in 1993 as an energy company with current businesses in IPP and cogeneration, including the Small Power Producer (SPP) operation. GLOW is considered the largest SPP group in Thailand with total cogeneration capacity of 995 megawatts (MW) of electricity and 967 tonnes per hour (tph) of steam (258 MW equivalent). Glow IPP Co., Ltd. (GIPP), the GLOW subsidiary responsible for its IPP business, operates a 713 MW combined cycle power plant. The GLOW Group’s total electricity and steam generating capacity is 1,966 MW equivalent, 66% of which has been contracted to EGAT under 21-25 year PPAs. The remaining amount of electricity and steam, together with treated water, are supplied to ICs under sales contracts which have remaining terms of up to 13 years. These long-term commitments provide GLOW with reliable source of revenue. In 2008, electricity sales accounted for 87% of GLOW’s total sales, with EGAT and ICs contributing 70% and 30% of electricity sales, respectively.
Currently, GLOW is constructing two new cogeneration units with capacity of 497 MW equivalent and a new IPP with 660 MW. The new IPP is operated by GHECO-One Co., Ltd., a 65:35 joint venture between GLOW and Hemaraj Development PLC (Hemaraj). GLOW also is in the process to acquire a 152 MW hydro power plant in Lao PDR by acquiring a 67.25% stake in Houay Ho Power Co., Ltd. (HHPC) from GDF SUEZ Group. GLOW’s total new project cost is approximately Bt63 billion for the developing period 2007-2011. GLOW will need Bt25 billion in new funding during 2009 to 2011. GLOW’s cogeneration business, which locates in Map Ta Phut Industrial Estate (MIE) and Eastern Seaboard Industrial Estate (ESIE) in Rayong province, mainly caters to petrochemical plants which require highly stable utility supplies. GLOW cogeneration facilities comprise 21 electrical generators that have been interconnected to provide ICs with reliable supplies of electricity and steam. With the interconnection system, all units back each other up in order to ensure stable and reliable availability. However, this poses a concentration risk on petrochemical manufacturing customers in the MTP area since the petrochemical industry is volatile in nature and fairly sensitive to the economic situation, currently faces a downturn cycle.
The GDF SUEZ Group has maintained a 69% holding in GLOW since GLOW listed on the Stock Exchange of Thailand (SET) in April 2005. In July 2008, SUEZ merged with Gaz de France and transformed into GDF SUEZ. The foreign investment strategy of GDF SUEZ remains unchanged. GDF SUEZ is one of the world’s leading energy providers. Its business mainly includes the energy supply in Europe and international, the gas transmission and distribution, and other energy services. At the end of 2008, the GDF SUEZ Group had total installed power capacity in operation of approximately 60,000 MW. In 2008, GDF SUEZ reported ?83.1 billion in revenue and ?13.9 billion in earnings before interest, tax, depreciation and amortization (EBITDA). The GDF SUEZ Group has been active in GLOW’s operation, providing GLOW with experienced management teams and technical support.
In 2008, GLOW’s operating performance slightly dropped from 2007 due to the unplanned shutdowns in both cogeneration and IPP businesses. The equivalent availability factors (EAF) of the cogeneration units declined from 95.87% in 2007 to 94.46% in 2008 while GIPP’s EAF dropped from 94.61% to 91.38% for the same period. As a result, the average heat rate of both businesses was slightly higher in 2008, reflecting higher fuel consumption.
In 2008, GLOW’s sales grew 4.5% year-on-year due to higher fuel prices while power and steam sales volume declined 2.6% and 5.7% from the previous year. Due to the severe fluctuation of fuel prices in 2008, GLOW locked in some coal prices at fairly high level which the stock lasts through the first quarter of 2009. As a result, operating income as a percentage of sales declined from 26.05% in 2007 to 21.42% in 2008. GLOW’s total debt to capitalization ratio increased from 41.39% in 2007 to 52.29% in 2008 as all the expansion projects were already underway, and required construction payment upon the project progress. Affected by drops in demand and plant shutdowns, the company’s funds from operations (FFO) declined 16.7% in 2008, resulting in a drop of the ratio of FFO from 35.26% in 2007 to 18.93% in 2008. However, GLOW’s debt service ability remains strong with debt service coverage ratio (DSCR) of 2.9 times in 2008 and EBITDA interest coverage ratio of 9.24 times in 2008 increased from to 7.74 times in 2007. -- End
Company Rating: Affirmed at A Issue Ratings: GLOW09OA: Bt2,310 million guaranteed debentures due 2009 Affirmed at A GLOW10DA: Bt3,490 million guaranteed debentures due 2010 Affirmed at A GLOW156A: Bt1,500 million guaranteed debentures due 2015 Affirmed at A GLOW175A: Bt2,000 million guaranteed debentures due 2017 Affirmed at A GLOW186A: Bt2,500 million guaranteed debentures due 2018 Affirmed at A Rating Outlook: Stable
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