Fitch Affirms GPSC at #A+(tha)# following GLOW a Off RWN

Stocks and Financial Services Press Releases Thursday September 5, 2019 16:19
Bangkok--5 Sep--Fitch Ratings

Fitch Ratings (Thailand) has affirmed Global Power Synergy Public Company Limited's (GPSC) National Long-Term Rating and its senior unsecured rating at 'A+(tha)'. The Outlook on the National Long-Term Rating is Stable. The ratings have been removed from Rating Watch Negative (RWN).

The 'A+(tha)' rating of GPSC incorporates a one-notch uplift from its 'a(tha)' Standalone Credit Profile (SCP). Fitch has reassessed the linkages between GPSC and its parent, PTT Public Company Limited (PTT, AAA(tha)/Stable), based on PTT group's recent commitment to provide equity for GPSC's acquisition of GLOW Energy Public Company Limited. We assess GPSC's linkages with PTT as moderate in line with Fitch's Parent and Subsidiary Rating Linkage Criteria.

Fitch has revised GPSC's SCP to 'a(tha)' from 'a+(tha)', driven by our expectation of GPSC's weakening financial leverage following the GLOW acquisition. We expect GPSC's funds from operations (FFO) adjusted net leverage to rise above 5.0x by end-2019 (2018: 1.5x) before hovering between 4.0x-5.0x over the medium term. The increase in leverage is not offset completely by GPSC's improvement in business profile after the GLOW acquisition, in Fitch's view.


Acquisition Weakens Credit Metrics: Fitch expects GPSC's financial profile to weaken following the partly debt-funded acquisition of GLOW. GPSC expects to fund over 40% of the total acquisition cost (THB127.7 billion) with long-term debt and the balance is likely to be funded with equity from shareholders. We expect FFO adjusted net leverage to increase to 5.2x by end-2019 from 1.5x in 2018 due to the acquisition of GLOW, before improving to around 4.0x-4.5x in 2020-2022. The investment in the Energy Recovery Unit (ERU) will put additional pressure on GPSC's financial leverage, particularly in 2023, when the largest payment occurs. We expect FFO adjusted net leverage to increase to 4.7x in 2023. Leverage will then decrease gradually as the new project starts to generate cash flow. ERU is a 250 MW thermal power plant that is part of Thai Oil Public Company Limited's (TOP, AA(tha)/Stable) Clean Fuel Project.

Asset Diversity Enhances Business Profile: Fitch believes the acquisition of GLOW and the investment in ERU will improve GPSC's business profile, with its increased size driving better asset and geographical diversification. Its electricity and steam generation capacity has increased to 4,299MW and 2,698 tonnes per hour (tph), respectively, from 1,977MW and 1,760 tph as of end-1H19. GPSC's is the country's second-largest private power producer (sixth position pre-acquisition), with its share of domestic power generation rising to 10% from 4% pre-acquisition.

Furthermore, GPSC's fuel mix is more diversified with the inclusion of GLOW's coal-based power generation capacities (12% of GPSC's post-acquisition capacity by equity stake). GPSC is also developing 727.5MW of electricity and 178tph of steam capacity that will start operations in 2023.

Long-Term Contracted Revenues: Fitch expects GPSC's revenue visibility to remain strong post-acquisition, as most of GLOW's generating assets are part of Thailand's regulated electricity business. The majority of GLOW's revenue is derived from contracted power and steam sales to customers with strong credit profiles, including the Electricity Generating Authority of Thailand and subsidiaries of PTT. These contracts protect the company against volume risk, as customers are required to off-take at least the minimum contract capacity. There is a contract renewal risk of some small power producer (SPP) projects of GLOW that will expire during 2022-2023. However, the National Energy Policy Council's (NEPC) resolution in January 2019 on the SPP extension and replacement scheme reduces the uncertainty to some extent.

Improving Margin; Stable Cash Flow: Fitch expects GPSC's EBITDA margin to improve to around 28%-29% over the next three years from 20.7% in 2018. GPSC will benefit from the cheaper fuel cost of GLOW's power plants, particularly the coal-fired power plants. GLOW has higher EBITDA margin of around 31%-32%, compared with GPSC's pre-acquisition margin of around 20%. Fitch expects GSPC to generate cash flow from operations of around THB14 billion-15 billion a year over the next three years.

Strengthened Linkage with PTT: We assess the operating and strategic linkages between GPSC and PTT to be moderate, resulting in a one-notch uplift. We expect GPSC to be the sole vehicle for PTT group's plan to diversify into a more stable power business. GPSC is also a major supplier of electricity and steam to PTT's key petrochemical and refinery (P&R) subsidiaries, including PTT Global Chemical Public Company Limited (PTTGC, AA+(tha)/Stable) and IRPC Public Company Limited (IRPC, A(tha)/Stable).

GPSC's EBITDA contribution post-acquisition to PTT will increase to around 7% from 2% pre-acquisition, but much lower than those of exploration and production and P&R businesses. The support is also reflected in GPSC's plan to raise THB 74 billion from its major shareholders, including PTT, PTTGC, TOP and Thai Oil Power, to fund the GLOW acquisition.


GPSC's business profile is similar to Bangkok Aviation Fuel Service Public Company Limited (BAFS, A+(tha)/Negative), which operates at Thailand's major airport. Both companies have highly predictable earnings. GPSC has more asset diversification and larger revenue and earnings, but BAFS operates on a near monopoly basis. However, GPSC's financial profile is weaker than BAFS due to higher financial leverage. GPSC's FFO adjusted net leverage is likely to hover around 4.0x-5.0x in the medium-term due to the acquisition of GLOW and the investment in ERU, compared with around 2.0x leverage ratio for BAFS for its current ratings. As a result, GPSC's SCP is rated one notch lower than BAFS.

GPSC and Navanakorn Electricity Generating Company Limited (NNEG, A-(tha)/Stable), a small power producer in Thailand, have stable earnings due to the nature of their contracts. GPSC has higher financial leverage (on a projected basis) than NNEG, with FFO adjusted net leverage of around 4.0x-5.0x. However, GPSC's SCP is higher than NNEG because of GPSC's better business profile. GPSC has more asset diversification and much larger operating cash flow than NNEG.

Fitch's Key Assumptions Within Our Rating Case for the Issuer
  • GPSC's consolidated EBITDA of THB19 billion-20 billion in 2019 and 2020
  • Consolidated EBITDA margin of 28%-29% in 2019 and 2020
  • GPSC's (standalone) EBITDA of around THB5.0 billion in 2019, increasing gradually in 2020-2022 from the commissioning of new power projects.
  • ERU project to generate EBITDA of around THB500 million a year from 2023 onwards
  • GLOW's EBITDA of THB14 billion-15 billion a year in 2019 and 2020
  • Capex of THB5 billion-8 billion a year during 2019-2021
  • Equity injection of THB74 billion, assuming full subscription of right offering
  • 50% dividend payout ratio (based on GPSC's standalone)
Developments That May, Individually or Collectively, Lead to Positive Rating Action
  • Evidence of stronger ties with PTT
  • An improvement in GPSC's SCP is improbable in the medium term, taking into account our expectations of high financial leverage post-GLOW acquisition. In any case, we may consider a positive revision of GPSC's SCP if FFO adjusted net leverage decreases to below 4.0x on a sustained basis.
Developments That May, Individually or Collectively, Lead to Negative Rating Action
  • GPSC deleveraging slower than Fitch expects due to higher investment or lower cash flow generation, resulting in FFO adjusted net leverage above 5.0x for a sustained period.
  • A weakening of business profile due to aggressive investments in projects with higher operating risks.
  • Weakened ties with PTT.
  • Senior unsecured rating could be notched down from the company's National Long-Term Rating if secured debt/EBITDA increases to above 2.0x (end-1H19: 1.7x) for a sustained period.

Manageable Liquidity: Fitch believes the refinancing of a short-term bridge facility used for funding the GLOW acquisition should be manageable, as we expect GPSC's major shareholders are committed to providing financial support. In addition, GPSC should be able to access debt market capital.

Apart from the acquisition loan, GPSC as of end-1H19 had THB3.5 billion of loans due within the next 12 months. This should be supported by cash balance of THB16.8 billion. In addition, we expect GPSC to generate positive free cash flow (before acquisitions) in 2019 and 2020. GPSC also had THB3 billion undrawn committed credit lines and THB5 billion uncommitted facilities.


Fitch adjusted the consolidated profile of GPSC by proportionate consolidation of IRPC Clean Power Company Limited (IRPC-CP), based on GPSC's 51% stake in the power project. We believe GPSC does not have full access to IRPC-CP's cash flow and has partial responsibility for IRPC-CP's obligations, based on the shareholding structure and funding arrangements at IRPC-CP.

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