Tris Rating has given an A rating to Gulf Energy Development Plc (GULF), reflecting the company's position as a leading power producers in Thailand, its well-diversified portfolio, predictable cash flows from long-term power purchase agreements (PPA) with Electricity Generating Authority of Thailand (Egat), and a proven record of developing and operating power plants.
The rating also incorporates the completion risk of two independent power producer (IPP) projects and the company's rising financial leverage during the development of the projects.
The stable outlook reflects the expectation that Gulf's power plants in operation will run smoothly while the plants under construction will commence operations as scheduled.
Tris also assigned Gulf's senior unsecured debentures of up to 10 billion baht an A- rating, one notch below the company rating. The rating reflects the structural subordination of the proposed debentures, compared with the debt obligations at the operating subsidiaries. The proceeds from the proposed debentures will be used to refinance existing debts, and to fund new investments.
Tris reports as of September 2018, Gulf's PPA contracts with Egat were for 9,931 megawatts (MW). Gulf's portfolio consists of four gas-fired power plants under the IPP scheme, 19 co-generation power plants under the small power producer (SPP) scheme, and one biomass power plant. The new plants in the development phase, which Gulf expects to complete in late 2024, will add 6,329MW to Gulf's capacity, making it the largest private power producer contracted to Egat.
In addition, Gulf has a well-diversified portfolio with investments in 31 power projects in Thailand and abroad. Some 20 power plants are in operation and the rest are under development and construction. The latter comprises SPP power plants, IPP power plants and solar farms in Vietnam, and a gas-fired power plant in Oman.
Gulf has predictable cash flows from PPAs with Egat, as it sells about 90% of its equity capacity to Egat under the SPP and IPP schemes. Each contract is effective for 25 years after a power plant commences commercial operation. For the IPP projects, Egat has to pay the full amount of the availability payment, whereas for SPP schemes, Egat has to buy at least 80% of the contracted capacity.
In addition, long-term service agreements mitigate operational risk for Gulf. Gulf's power plants employ proven technology from reputable suppliers such as Siemens, GE and Mitsubishi and hold long-term service agreements and long-term parts agreements with the original equipment suppliers. The service agreements cover the life of the PPA agreements.
The company's management and operating teams also have over 20 years of experience of developing and operating power plants in Thailand. This helps build confidence for Gulf's projects currently under development and construction.
Gulf has a number of projects under development. The company's capital expenditures and investments during 2018-2024 are estimated at 128 billion baht. Some 113 billion baht is budgeted to develop SPP and IPP projects, 7.2 billion to build a power project in Oman, and 8.1 billion for solar and wind power projects in Vietnam and a biomass power plant in Thailand.
Given the number of projects under construction and the plans for new projects, Tris forecasts Gulf's leverage to rise steeply. Gulf's debt-to-capitalisation ratio is projected to increase to around 70% during 2020-2023.
Gulf's debt-to-earnings before interest, tax, depreciation and amortisation ratio is projected to improve during 2023-2025, when all power projects are operating.
