Tris Rating has affirmed its company rating on Ratchaburi Electricity Generating Holding Plc (Ratch) at AAA.
The rating reflects Ratch's position as the largest private power producer in Thailand, its predictable cash flows from long-term power purchase agreements (PPAs) and the strong relationship Ratch has with the Electricity Generating Authority of Thailand (Egat). The rating also takes into consideration Ratch's conservative investment plans and strong financial position.
Ratch is the largest power producer in Thailand. As of May 2018, Ratch had 6,624 megawatts of equity capacity (power-generating capacity based on the percentage ownership of each power plant) in operation, of which 5,866MW was connected to the Thai power grid.
Ratch's equity capacity will increase to 7,009MW in 2020 when it completes projects in the pipeline such as solar and wind farms in Australia and the Xe-Pian Xe-Namnoy project in Laos.
Some 87% of Ratch's equity capacity is covered by the PPAs with Egat (rated AAA by Tris Rating). The PPAs contain a pricing formula structured on a pay-if-available basis.
With this basis, the PPAs provide Ratch with stable cash flows as long as the company maintains its power plants in accordance with PPA targets and keeps the plants ready for Egat's dispatch instruction.
Most of Ratch's plants have reached the plant availability target every year for the last five years. The Hongsa power plant, one of Ratch's main power plants, shows an improving trend after resolving technical issues in the past two years.
The PPAs also contain mechanisms whereby fuel costs are passed through to Egat. As a result, cash flow has been stable and predictable.
Ratch has a strong relationship with Egat in terms of shareholding structure and plant operation. Egat is a major shareholder of Ratch. It has owned 45% of Ratch since the inception of Ratch in 2000.
Egat runs Ratch's main power plants, such as the Ratchaburi plant, the Hongsa plant and the Nam Ngum 2 plant, under operation and maintenance agreements.
Egat is also the major customer of Ratch's power plants under independent power producer (IPP) and small power producer (SPP) schemes. Egat's strong credit profile mitigates counter-party risk for Ratch.
Tris forecasts the company's earnings before interest, tax, depreciation and amortisation to range from 11 billion to 13 billion baht a year during 2018-20, despite a drop in revenue from the Ratchaburi plant, an artefact of the way the PPA is structured.
Equity income from investments in other power plants will offset the decline in revenue from the Ratchaburi plant. Ratch has equity investments in many power projects, such as the Hongsa plant, the Xe-Pian Xe-Namnoy plant and the SPP co-generation power projects. These investments will contribute 3.5-4 billion baht to profits per year during 2018-20.
Tris Rating estimates Ratch's dividend income from equity investments at about 2-3 billion baht per year during 2018-2020.