ITD faces big risks after power plant plan scrapped

In a research note, the house noted that the Dawei development project is still far from reality.

“Despite potential to bring economic prosperity to Burma, the project is still in its infancy and clouded with risks. In our view, ITD faces a country risk and an unpredictable business climate. The sudden call to halt the 4,000MW coal-fired power plant project would make it difficult for ITD to secure strategic partners to help fund the project. We believe plans to sell 50,000 rai of land at Dawei at Bt5 million per rai and use the proceeds to finance its investment is optimistic. Without strategic partners and a firm funding scheme, the project will remain a drag to ITD's earnings in 2012,” it said.

On January 9, the Burmese government’s Electricity Minister, Khin Maung Soe, announced at a press conference in Rangoon that plans for the 4,000-megawatt coal-fire power plant would be cancelled.

"We [the government] listened to the media, and studied the impact of a coal-fire power plant. After reading [the reports], we said it is not appropriate to have a coal-fire power plant. We decided to cancel the 4,000-megawatt coal-fire power plant.”

The coal-fired power plant is the main part of the development plan, to be carried out by its subsidiary, Dawei Development Co Ltd.

To DBS, this decision will exacerbate the situation ITD is facing. Losses in the last few quarters, coupled with an aggressive investment policy, have resulted in a steep rise in net debt-to-equity ratio. In the third quarter, the ratio was 2.4 times, which is near the company’s 2.5 times ceiling. This would also require ITD to raise capital.