RATCH
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Ratch 'BBB+' Rating Affirmed With Stable Outlook On Resilient Operations; Notes Rating Raised To 'BBB+'
SINGAPORE (Standard & Poor's) June 9, 2015--Standard & Poor's Ratings Services
said today that it had affirmed its 'BBB+' long-term corporate credit rating
on Ratchaburi Electricity Generating Holding Public Co. Ltd. (Ratch). The
outlook is stable. We also affirmed our 'axA+' long-term ASEAN regional scale
rating on the Thailand-based independent power producer.
At the same time, we raised our long-term issue ratings on all of Ratch's
guaranteed and outstanding notes to 'BBB+' from 'BBB'.
"We affirmed the ratings because we expect the operating performance of
Ratch's core subsidiaries to remain stable and support the company's capital
structure over the next 24 months," said Standard & Poor's credit analyst
Yuehao Wu.
Ratch benefits from predictable power purchase agreements (PPAs) with its
controlling shareholder and key off-taker, state-owned utility Electricity
Generating Authority of Thailand (EGAT). The PPAs, which include both
availability and energy payments, protect Ratch from volatility in demand and
fuel price risks. This strength is moderated because of the concentration of
the company's generation assets in one location in Thailand and lack of fuel
diversity. As of March 31, 2015, three plants in the Ratchaburi industrial
estate account for about 85% of the company's total operational generation
capacity of 5,612 megawatt. Gas accounts for more than 90% of Ratch's fuel
supply. However, this dependency will go down as the company puts up more
coal-fired power plants.
We expect stable operations at Ratch's subsidiaries and joint ventures in
Thailand, Australia, and Laos, underpinned by predictable PPA income, to keep
the company's financial performance steady over the next two years. This is in
spite of the company's sustained capital injections into joint venture power
plants. We have therefore revised Ratch's financial risk profile to "modest"
from "intermediate."
In our view, Ratch benefits from its "strategically important" position in the
EGAT group. We do not expect EGAT to lower its 45% controlling stake in Ratch,
given its objective to hold, directly and indirectly, at least 50% of
Thailand's power generation capacity.
We raised the issue ratings to bring them on par with the corporate credit
rating to reflect an improvement in Ratch's ratio of priority liabilities to
total assets. This ratio is now close to 20% as of March 31, 2015. We expect
the company can sustain this ratio at less than 20% as it invests in more
overseas joint ventures over time.
"The stable outlook reflects our expectation that Ratch will maintain its
current, robust capital structure over the next two years, despite increasing
focus on capacity additions and investments," said Ms. Wu. "We anticipate that
the company's debt-to-EBITDA ratio will remain below 2.0x during this time. We
do not expect the relationship between Ratch and its controlling shareholder
EGAT to change."
We may lower the rating if: (1) Ratch's financial profile weakens, possibly
due to debt-funded acquisitions or investments that exceed our expectation,
such that the debt-to-EBITDA ratio approaches 3x for a prolonged period; (2)
any change in the economics of the company's ventures, including changes in
ownership or performance, affects its capital structure; (3) we believe future
growth through joint ventures, particularly project finance, significantly
increase Ratch's off-balance-sheet debt; or (4) the credit quality of Ratch's
largest customer EGAT weakens.
We believe the potential for an upgrade is limited over the next two years
because the group credit profile of EGAT constrains the rating.
