Banpu cuts capex budget for second time

“Coal prices have not yet recovered, while volatility in the financial market remains. The company needs to keep its financial position in check, through investment only in necessary projects to bring down the debt-to-equity ratio to a manageable level,” Chanin Vongkusolkij, chief executive of the coal company, told a press conference yesterday.
 Some projects have been cancelled or postponed, as coal prices remain low. Affected are coal mines in Mongolia, Indonesia and Australia. Investment in the more profitable power business will continue intact.
The company earlier this year cut the four-year capex budget (2012-15) from $1.75 billion to $1.24 billion. The new budget could be below $1 billion. The company spent $207 million from the budget last year and $270 million in the first half of this year.
“New financial tools will be introduced to keep interest expense fixed, as interest rates could rise,” he said.
Half of loans are now at fixed interest rates, but that could be raised to 70-80 per cent of total debt of $3.34 billion. With $650 million in cash, net debt is $2.6 billion, which is equivalent to 0.9 time its equity.
The company would keep the D/E ratio at this level, while focusing more on cost cutting, involving production cost and operating cost. Overall cost could be reduced by 20 per cent this year and a similar rate next year.
Revenue and profits could fall from last year, as coal prices are slipping. However, higher volume could help the company achieve sales of $3 billion this year or about Bt100 billion, which would be about 10 per cent down from last year’s Bt110 billion.
“Coal prices this year are still lower than last year, but I believe that they will bottom out soon and should gradually recover next year. Although demand in Europe, the US and Japan is softening, it is firming in Asia particularly China, where stimulus measures are expected to boost the economy,” Chanin said.
Banpu reported half-year net profit at Bt1.55 billion, down 64.45 per cent from Bt4.36 billion in the same half last year. In the second quarter, it reported sales of 12 million tonnes of coal.