An opportunity disguised as a threat

NOPPOL MILINTHANGGOON

By NAREERAT WIRIYAPONG

While other companies have been spooked by the global outlook and are hanging onto their cash, Ratchaburi Electricity Generating Holding Plc (RATCH) has moved the other way to grasp the opportunities the crisis may bring.

Ratchaburi, Thailand's largest private power producer, sees the global credit crunch as a chance to diversify its portfolio and move into other Southeast Asian countries.

Managing director Noppol Milinthanggoon said Ratchaburi, which has a total capacity of 4,347 megawatts and five power joint ventures in Laos, has been in talks on investing in coal mines in Sumatra and Java in Indonesia and is considering options in electricity generation in Vietnam.

"We have strategies to diversify into electricity-related business over the next two years and now is the right time to step up efforts as others want to sell their assets,'' he said.

"We have started discussions for buying assets that would give us good returns on investment with potential risks being taken into account.''

Mr Noppol, who is also a former executive of the Electricity Generating Authority of Thailand (Egat), said banks and financial institutions had rushed to buy energy assets when the economy was booming. With the world financial system in turmoil, these investors are now willing to sell assets they lack the expertise to operate.

"If the economy had remained in good shape, nobody would want to divest such assets and we would not have the opportunity to buy,'' he said.

The company is also exploring business opportunities in renewable energy both in Thailand and abroad after divesting its 15% ownership in a biogas joint venture.

Ratchaburi has 8.4 billion baht in cash, plus retained earning of 23.49 billion baht, to finance new investments. In addition, 7.5 billion baht worth of debentures have been approved for raising fund in the near future.

Mr Noppol admitted that business diversification, especially overseas, presented risks. But he said Ratchaburi was familiar with the Southeast Asian market and that the coal business was not as complicated as electricity generation.

"We have developed business in Laos for some time and it is not much different from Thailand in terms of culture,'' he said. "For Vietnam, we are studying local laws, workforce and other aspects that might affect our business there.''

Egat, which owns the majority of Ratchaburi, and other business partners including South Korea's SK Engineering and Construction are keen to jointly invest overseas with Ratchaburi.

"There is more opportunity overseas than the local market but, of course, it is riskier,'' said Mr Noppol. "We are exploring markets that are further than those in the past and have to take a cautious approach.''

By diversifying into energy-related business while the economy slows, Ratchaburi will be in a better position to maintain business growth by supplementing its core power-generating operations. Egat is reviewing its five-year Power Development Plan to reflect weaker electricity consumption.

Ratchaburi's ongoing power projects in Laos, including the US$3.9-billion Hongsa thermal power plant and the $965-million Nam Ngum 3, are facing delays of a year or more in power purchase agreements with Egat.

"We are taking this opportunity to review expansion plans and implement the projects more cautiously,'' said Mr Noppol.

He said it was likely to take two to three years for local electricity consumption to bounce back to normal.

Next year, factors affecting power demand would become clearer, such as the real shape of the Thai economy, the number of unemployed and how soon the new government will introduce stimulus measures. "Until then, we have to explore and find new sources of revenue to maintain growth over the next two years,'' he said.

Other ongoing projects in Laos include Nam Ngum 2, where construction is more than 60% complete, and the $830-million Xe Pian-Xe Nam Noi project, for which Ratchaburi signed a project development agreement with the Laos government last month for power delivery in 2011.

"Definitely, we have to borrow money to complete the construction of these projects. Fortunately, some projects are delayed. Otherwise, it would be tough to secure all financing required from the banks during the current global credit crunch,'' he said.

Mr Noppol said the Thai economy was in a better position to weather the world's financial breakdown than it was in the 1997 financial crisis.

"This time, the problem has not originated in Thailand as in the past. Meanwhile, we have learned the lessons from the 1997 crisis,'' he said.

But economic performance will also hinge on how quickly and effectively the government can act, he said. From a corporate perspective, Ratchaburi would focus on key strategies amid the global slowdown.

"First, we will explore new opportunities to expand business. We now have time to learn and develop these new businesses,'' said Mr Noppol.

"Also, we have to invest more cautiously and concentrate on activities that yield firm returns on investments.''

As well, the company must choose partners who share the same business direction, he concluded.