Contacts
E-mail Addresses
Rungtip Charoenvisuthiwong Suwat Chritamara Wiyada Pratoomsuwan WatanaTiranuchit
[email protected] [email protected] [email protected] [email protected]
N e w s
f o r
Announcement No. 390
I n v e s t o r s 4 May 2006
Glow Energy Public Company Limited
Company Rating: Issue Ratings: GLOW089A: Bt6,500 million guaranteed debentures due 2008 GLOW09OA: Bt2,310 million guaranteed debentures due 2009 GLOW10DA: Bt3,490 million guaranteed debentures due 2010 Rating Outlook: Rating History: 25 Aug 2003 25 Jul 2003 27 Jul 2000
Company Rating AABBB+
A
A A A Stable Issue Rating Secured Unsecured AABBB+
Rating Rationale TRIS Rating upgrades the company rating of Glow Energy PLC (GLOW) (formerly named Glow SPP PLC) and the ratings of its debentures to “A” from “A-”. The ratings reflect GLOW’s stable cash flow from long-term Power Purchase Agreements (PPAs) with Electricity Generating Authority of Thailand (EGAT), its proven record of providing reliable electricity and other utilities to customers, and the support from its major shareholder, Suez-Tractebel Energy Holdings Cooperatieve U.A. (STEH). The ratings also take into consideration power plant operation risk and uncertainty about the ongoing deregulation of the power industry. The GLOW Group comprises four small power producers (SPPs) and one independent power producer (IPP) with total electricity generating capacity of 1,709 megawatts (MW). It is considered the largest SPP group in Thailand with total installed capacity of 996 MW electricity and 968 tons per hour (t/h) steam. According to the SPP and IPP schemes, GLOW sells electricity to EGAT under 21-25 year PPAs and supplies electricity, steam and treated water to industrial customers (ICs) in the Map Ta Phut Industrial Estate (MIE) under long-term supply agreements that average 10-15 years, which provides GLOW with stable revenue. The PPAs are well designed to cover fixed and variable costs, and partly mitigate the foreign exchange rate risk by adjusting the contract rate to reflect the current exchange rate. In 2005, the company generated 62% of its revenue from EGAT and 38% from ICs, while revenue from electricity sales accounted for 85% of total revenue. GLOW’s SPP businesses, which are located in MIE and Eastern Seaboard Industrial Estate (ESIE) in Rayong Province, mainly cater to petrochemical plants. Its cogeneration facilities consist of 20 electrical generators which have interconnection to provide ICs with reliable supplies of electricity and steam. The various plants partially back each others up and the steam network could substantially reduce the risk of supply interruption and pressure loss in the event that any one unit fails. These factors have allowed the cogeneration facilities to maintain high reliability rates. Moreover, its coal-fired plant alleviates fuel procurement risks by reducing the company’s dependency on gas. The volume of gas the company consumes shrank from 100% of total fuel to an average of 87% after the coal-fired plant became fully operational in 2000.
News for Investors
After GLOW listed on the Stock Exchange of Thailand (SET) in April 2005, the Suez Group (Suez) diluted its holding from 99% to 69%. STEH currently holds a 25% stake in GLOW and Suez Energy (Thailand) Co., Ltd., Suez’s holding arm which was set up in January 2006, holds the remaining 44%. Suez is an international industrial and services group that is active in energy and environmental businesses. With a strong presence in its markets, Suez has total power capacity of approximately 56,000 MW and 2005 revenues of EUR41.5 billion. Suez remains as a major shareholder in GLOW and has provided wellexperienced management teams and technical support. In 2005, GLOW’s operating performance was satisfactory. The company achieved its equivalent availability factor (EAF) for SPPs at 95.7% and forced outages were as low as 0.4%. The EAF of Glow IPP Co., Ltd. (GIPP), the only IPP unit of GLOW, was 83.7%, a decline from 96.7% in 2004, due to major scheduled maintenance and a forced outage of 5.2%. The average heat rate of SPPs in 2005 was in line with 2004. The heat rate of GIPP, however, was slightly higher in 2005 due to the outages. GLOW’s financial performance in 2005 improved substantially from the previous year due to the doubling of its power generating capacity after the acquisition of Glow Co., Ltd. (GlowCo) in December 2004, which added Glow SPP1 Co., Ltd. (GSPP1) and GIPP into its portfolio. As a result, sales in 2005 increased 80% over 2004, with net income from operations increasing by 57% to Bt4,314 million. Operating income as a percentage of sales decreased slightly to 29.1% from 29.4%, mainly due to rising fuel prices. GLOW’s liquidity is sufficiently strong to fund the expansion Phase 4 from operating cash flow. The new power industry model, namely the Enhanced Single Buyer or ESB system, was adopted following a Cabinet resolution on 9 December 2003. The ESB model is expected to have less impact on existing PPAs than the previous power pool system because EGAT continues to be the single power purchaser buying from all power producers. However, the details of this model, its impact on existing players, and EGAT’s role in the electricity generation business remain to be seen. Rating Outlook The “stable” outlook reflects GLOW’s reliable cash flow from its long-term PPAs with EGAT and ICs. The company is expected to maintain its strong financial profile and ability to finance growth without weakening its financial position. Despite frequent organization structure changes within the group, the company is expected to maintain its strong operational performance and its competitive edge in Map Ta Phut area. The upcoming restructuring of its major shareholder, Suez, should have no immediate impact on GLOW’s operations.
Key Rating Considerations Strengths/Opportunities Stable cash flow from long-term sales contracts with EGAT and ICs Proven operational performance Continuous support from Suez Flexibility of fuel usage Well-established transmission network in Map Ta Phut area Weaknesses/Threats Persistent high fuel costs Increasing competition from PTT Group Ongoing business restructuring within GLOW Group and uncertain policy of the
new Suez - Gaz de France Group regarding GLOW holding Ongoing deregulation of Thailand’s electricity industry
Corporate Overview In 1993, GLOW was established, under the name The Cogeneration Co., Ltd., by Banpu PLC, Nordic Power Invest (NPI), and Imatran Voima Holding. Through a combination of acquisitions and tender offers, Suez acquired 99% of GLOW in 2003. In April 2005, GLOW was re-listed on the SET; it was first listed during 1996-2002. Suez’s shareholding in GLOW was diluted from 99% to 69%
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News for Investors
after the re-listing. Currently, Suez’s holding in GLOW is divided between STEH (25%) and Suez Energy (Thailand) Co., Ltd. (44%).
2006, GLOW decided to form Glow Hemaraj Energy Co., Ltd. (GHECO), a joint venture with Hemaraj Land and Development PLC (Hemraj), one of GIPP’s founders.
Chart 1: GLOW Group Structure Suez
Table 1: Installed Capacity of GLOW Group
Public & Individual 31%
100% 100% Suez-Tractebel Energy Suez Energy (Thailand) Co., Ltd. Holdings Cooperatieve UA 25% 44%
GLOW*
15%
Eastern Fluid Transport
Plants
100%
Hemraj 100%
50%
GSPP3 GSPP2 Glow Co * *
100%
GHECO
100%
Glow Demin Water
100%
GSPP1 *
95%
50%
5%
Unit GSPP GSPP1 GSPP2 GSPP3 Glow Demin Water SPP capacity GIPP Group capacity
Power
Steam
(MW) 359 124 213 300 996 713 1,709
Clarified Water
(t/h) 438 90 140 300 968 968
Demin Water
(cu.m/h) 1,500 1,110 2,610 2,610
(cu.m/h) 480 70 380 80 1,010 1,010
Source: GLOW
GIPP*
* Electricity Generator Source: GLOW
Originally, GLOW’s business focused on SPP only, while Suez also invested in another electricity holding company, Glow Co., Ltd. (Glow Co). Glow Co operates a SPP under the operation of its wholly-owned subsidiary, Glow SPP1 Co., Ltd. (GSPP1), as well as an IPP under Glow IPP Co., Ltd. (GIPP). In December 2004, GLOW acquired all shares of Glow Co from Suez and became Suez’s sole investment in the power and utilities business in Thailand. Currently, the GLOW Group (the Group) comprises four SPPs and one IPP. SPP operators are GLOW, GSPP1, Glow SPP2 Co., Ltd. (GSPP2), and Glow SPP3 Co., Ltd. (GSPP3). GLOW’s SPP business is the largest SPP group in Thailand, producing electricity, steam and treated water using cogeneration technology to supply large-scale industries in Map Ta Phut Industrial Estate, Eastern Seaboard Industrial Estate and the surrounding area and to sell electricity to EGAT. GIPP is the only IPP in GLOW’s portfolio located in Chonburi Industrial Estate. The Group’s total installed capacity is 1,709 MW of electricity, 968 t/h of steam, 2,610 cubic meter per hour (cu.m/h) of clarified water, and 1,010 cu.m/h of demineralized (demin) water. To prepare for the next round of bidding for IPPs, expected during 2006-2007, in January
GLOW Group has nine PPAs with EGAT, which utilize 76.3% of its total power capacity. One PPAs was awarded to GIPP to supply 713 MW for period of 25 years, while the others are 21-25 year PPAs for its SPPs that supply 590 MW of electricity. GLOW’s SPP business, also has various contracts with ICs, as shown in Table 2. Table 2: Industrial Customers’ Contracts Product Power Steam Water
No. of Volume Contracts Offtake 34 388 MW 21 699 t/h 13 1,529 cu.m/h
Period
Min Take
5-17 yrs 10-20 yrs 7-21 yrs
60%-85% 60%-85% 65%-85%
Source: GLOW (as of 31 Dec 2005)
In 2005, power accounted for 85% of the Group’s total sales, with 62% being contributed by sales to EGAT. IPP generated 30% of the Group’s total business. Table 3: 2005 Revenue Breakdown Consolidation Power sales to EGAT Power sales to ICs Steam sales to ICs Water sales to ICs Total sales
SPP 32% 23% 14% 1% 70%
IPP 30% 0% 0% 0% 30%
Total 62% 23% 14% 1% 100%
Source: GLOW
Recent Developments Listing on the Stock Exchange of Thailand In February 2005, GLOW registered to change its name from Glow SPP Co., Ltd. to Glow Energy PLC and listed on the SET on 21 April 2005. GLOW raised Bt1,920 _______________________________________________________________________________________ Glow Energy PLC 3 4 May 2006
News for Investors
million capital by offering 80 million new shares to the public at Bt24 per share. The proceeds were used to partly finance the expansion of Phase 4 and for working capital.
Successful Phase 4 expansion GLOW had planned Phase 4 as the expansion of its generating capacity comprising 2 units of 39 MW electricity and 69 t/h steam each. Total investment cost was US$73.2 million, or Bt3,000 million approximately. Construction of the first unit started in July 2003 and started commercial operations in January 2005. The second unit started construction in July 2004 and commenced commercial operations in January 2006. Total capacity of the two units was 78 MW electricity and 138 t/h steam, which will enable GLOW to better serve the increasing demand of ICs. During 2005 to early 2006, GLOW signed new contracts, most of which were for 15 years, with ICs to supply 73 MW of electricity. The company also signed a contract with PTT PLC to meet its additional gas needs.
Establishment of a joint venture to prepare for IPP bidding GLOW and Hemraj, a 5% shareholder of GIPP, formed a joint venture, Glow Hemaraj Energy Co., Ltd. (GHECO) to prepare for the next round of IPP bidding. GHECO, equally owned by GLOW and Hemraj, was established on 14 June 2005 with a primary registered capital of Bt10 million. It will engage in the principal business of development of power generation projects in Thailand and certain neighboring countries under the IPP scheme or other such similar programs in Thailand for the supply of electricity to EGAT or its successors. The new round of IPP bidding is expected to begin within 2006-2007 to help the country catch up rising electricity demand. The reserve margin was thinner than in the past; 22.6% as of September 2005, compared with 35.1% at the end of 2003. However, due to uncertainty regarding the EGAT situation, there is no concrete plan announced; hence, the solution from the power’s regulators remained to be seen.
INDUSTRY ANALYSIS For several decades, Thailand’s electricity sector has been dominated by three state-owned enterprises involving in the generation, transmission and distribution of power. EGAT has dominated electricity generation and transmission, while the Metropolitan Electricity Authority (MEA) and Provincial Electricity Authority (PEA) have been responsible for distribution. The MEA and PEA are obligated to purchase energy from EGAT. Thai electricity industry has experienced a strong demand growth which is expected to continue as necessary factor for consumption and economy. Despite the uncertainty of EGAT situation and deregulation of domestic power industry, EGAT is foreseen to continue being a key component for the development of country’s power industry.
Privatization scheme encourages private investment in the power sector Privatization of the power sector began in the electricity generating sector by encouraging private companies to produce and sell electricity to EGAT. The SPP scheme was introduced in 1992, followed by the IPP scheme in 1994. Both IPPs and SPPs have 20- to 25-year power purchase agreements (PPA) with EGAT. The PPAs are well designed to mitigate the market risk of the operators, leaving mainly operating risk to be managed. Private producers under the IPP scheme are obligated to sell all electricity output to EGAT, while private power producers under the SPP scheme can sell electricity either to EGAT or to industrial users. EGAT sold two of its power plants to Electricity Generating PLC in 1995 and 1996, and then sold the Ratchaburi power plant to Ratchaburi Electricity Generating Co., Ltd. (RATCHGEN) in 2000. EGAT is moving from being a power producer to a power purchaser. As of January 2006, Thailand had combined installed electricity generating capacity of 26,457 MW. EGAT had 60% of the total, followed by EGAT’s affiliates and IPPs (30%), SPPs (8%), and power imported from Laos (2%). EGAT’s share of power generation capacity has decreased from 100% before 1995 to 92% in 1999 and to
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News for Investors
60% at the end of January 2006. Electricity generation from private producers sharply increased by 2,870 MW in 2000 when the first two IPPs, Tri Energy Co., Ltd. (TECO) and Independent Power (Thailand) Co., Ltd., began commercial operations in July and August 2000, respectively. The first two units of the Ratchaburi power plant started operation in the same year.
Strong electricity demand may result in decreasing reserve margin Electricity demand in Thailand has been very strong over the past few decades. Although the economic crisis in the late 1990s caused electricity consumption to decline by 2.7% per annum in 1998, electricity consumption grew approximately 7% per annum from 2000 to 2005. According to a Load Forecast Committee study completed in January 2004, under a moderate economic recovery scenario, electricity consumption will expand at an average rate of 7.53% from 2004 to 2008, 6.79% from 2009 to 2013, and 6.43% from 2014 to 2015. Despite a recovery in electricity demand since 2000, growth has not yet absorbed the sharp increase in supply, resulting in an oversupply situation. As of September 2005, the reserve margin was 22.6%, higher than the target of 15% to 20%. The oversupply is expected to be absorbed in 2005-2006 when demand recovers further and the reserve margin drops to an acceptable range. According to EGAT’s latest Power Development Plan (PDP-2004), the reserve margin is expected to drop to 13.7% in 2006.
existing players, and EGAT’s role in the electricity generation business remain to be seen. BUSINESS ANALYSIS GLOW has a strong position as the largest SPP operator in Thailand, and also has an IPP unit in its portfolio. Under the SPP and IPP schemes, GLOW’s revenue is partially secured under PPAs with EGAT, topped by the long-term offtake contract with ICs. GLOW’s operating performance is well managed by an experienced management team, and is supported by well designed systems that strengthen its reliability and competitive edges.
Stable cash flow generation from long-term contracts with EGAT and ICs GLOW has nine 21- to 25-year PPAs to sell 1,303 MW of electricity to EGAT and various long-term contracts with ICs to supply another 388 MW. Minimum offtake by EGAT for SPPs is 80% while ICs are in the range of 60%-85%. GLOW’s ICs are mainly petrochemical operators who consume stable volumes and require reliable utilities supplies. For its IPP business, GIPP’s revenue from PPAs principally consists of availability payments (AP) and energy payments (EPipp). AP intends to cover all fixed costs with a return on equity, fixed operation and maintenance cost, and debt service. AP is indexed based upon certain foreign exchange and consumer price index (CPI) factors. EPipp is structured to recover the variable costs of operation in response to EGAT dispatch, EGAT retains an important role in the new consisting of actual fuel cost, based on power industry model agreed heat rate, and variable operation The power pool system, which aims to and maintenance escalated, based on the promote competition in electricity supply, Thai CPI. In this instance, GIPP benefits was officially cancelled by a Cabinet resolution from the differential between the hear rate on 9 September 2003, due partly to the allowance under the PPAs and the actual unfavorable experiences of utilities in many heat rate with fuel cost directly passed on countries including the United States and the to EGAT. United Kingdom. The new power industry The electricity tariff under PPAs for model, namely the Enhanced Single Buyer or SPPs comprises capacity payments (CP) ESB system, was approved under a Cabinet and energy payments (EPspp). The CP is resolution on 9 December 2003. The ESB based on the actual number of kilowatts model is expected to have no impact on each plant furnishes, covering the investment existing PPAs because EGAT continues to costs of power plants. The CP is formulated be the single power purchaser, buying from to compensate the company for foreign all power producers. However, the imexchange fluctuation by indexing to the plementation of this model, its impact on actual US$/Baht exchange rate. EPspp _______________________________________________________________________________________ Glow Energy PLC 5 4 May 2006
News for Investors
primarily cover the variable costs of production and maintenance, and are based on the actual amount of kilowatt-hours each plant delivers, multiplied by the energy charge. Consequently, income is subject to the performance of the plants. EGAT must pay at least 80% of full EPspp specified in the contracts, although the actual energy dispatched might be less than 80%. However, the price structure for ICs is based on the PEA’s tariff structure, in which the capacity charge is derived from the demand charge. The energy charge is a large portion that mirrors the investment cost, cost of fuel, operations and maintenance. Thus, GLOW’s electricity income from ICs depends on its load factor, which is historically stable and often in excess of 80%. A fuel transfer payment (Ft), applied to only ICs, was designed to offset the company’s exposure to fuel price fluctuations. However, the effectiveness of this payment is questionable. The adjustment of Ft is also subject to government policy and raises concerns over the potential for a wide gap between the company’s actual costs and structured compensation. With the well-structured power tariff, GLOW has secured electricity sales income, which accounted for 85% of total revenue in 2005. Table 4 shows the volume and revenue from power sales; the figures for 2004 do not include GIPP and GSPP1 since GLOW acquired both in December 2004. Table 4: Power Sales Power Sales Volume Amount
Unit MWh Bt mil
2004 5,611,124 12,138
2005 11,308,722 24,088
Source: GLOW
For steam supply, the steam charge is also designed to adjust for inflation and to protect against increases in the cost of fuel. GLOW’s steam revenue is mainly derived from the minimum fixed charge for reserved capacity to be made available to ICs during contract period, and the steam energy price, which is based on the quantity of steam delivered. Price adjustment varies from contract to contract but are typically adjusted for CPI, fuel cost, foreign exchange and raw water.
Proven operational performance Being the largest SPP group supports GLOW in terms of revenue generation and this strength is enhanced by the extensive experience of the management team. To strengthen its operational performance, GLOW has interconnected its 20 electrical cogeneration facilities to ensure its ability to provide a secure supply of electricity and steam to its customers. Moreover, GLOW also implemented a steam network, which reduces the risk of supply interruption and pressure loss if any unit fails. With the interconnection system, GLOW has the flexibility to have all units back each others up in order to maintain high and stable availability. Availability at its SPP facilities remained stable at 95%-96% during 20042005 while availability at its IPP plants dropped to 83.7% in 2005 due to problems that occurred during major overhaul which resulted in a down time of 19 days (approximately 5.2% of annual service period). Table 5: Plant performance 2004 SPP IPP Availability 95.47% 96.68% Forced outage 0.33% 0.67% Scheduled outage 4.20% 2.65% Plant allocated heat rate (BTU/kWheq) Gas-fired 8,914 6,867 Coal-fired 10,384 n.a.
2005 SPP IPP 95.74% 83.68% 0.41% 5.19% 3.85% 11.14% 8,947 10,206
6,953 n.a.
Source: GLOW
GLOW awarded a long-term maintenance contract for its SPP plants to Wood Group, commencing on 1 January 2005. GSPP3 has a long-term contract with Foster Wheeler to maintain the circulating fluidized bed boiler that is a key component of its coalfired generator. GIPP, whose operation commenced in January 2003, has a 3-year warranty from Alstom on the plant performance, as a condition of EPC contract. Routine inspections and other required maintenance will be done either by an experienced in-house team or through individual out-sourced contracts, with Suez providing support on an advisory basis or with technical assistance, if necessary.
Secure of fuel supply Fuel accounted for approximately 89% of GLOW’s total cost of goods sold in 2005.
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News for Investors
After its coal-fired plant started operations in 2000, GLOW’s dependency on gas was reduced from 100% of fuel costs to around 87%. The Group has various Gas Sale Agreements (GSAs) with PTT for period of 15-25 years to secure all gas requirements. The price structure includes a monthly PTT selling price and pipe fee. The coal-fired power plant consumes around 800,000-900,000 tonnes of coal per annum with 70,000 tonnes of stock reserve. GSPP3 has a coal supply contract with Banpu Minerals Co., Ltd. that obliges GSPP3 to buy at least 420,000 tonnes per annum. The coal supply contract is for 15 years, ending in 2014, with the new reference price being the average of JPU (Japanese Power Utilities Price) and ABARE (The Australian Bureau of Agricultural and Resource Economics). Originally, the reference price for its coal contracts was based on JBP Price (Japanese Power Utility Benchmark Price). However, the JBP Price has not been announced since 2003. In late 2005, GLOW reached an agreement with Banpu Minerals and EGAT to implement the new price benchmark. In addition, GLOW has already secured 37% of its coal requirement in 2006 under a 3-year coal supply contract, which is partially at a fixed price.
Suez is also active as a trader around its assets and as a marketer of electricity and gas, and offers energy-related services to industrial and commercial customers. Suez has a strong presence in its markets, with total power capacity of nearly 56,000 MW. In the LNG business, Suez has a vaporization capacity of 27.8 million cu.m. of natural gas per day and owns or has secured long-term shipping capacity of 766,100 cu.m. of LNG. In 2005, Suez sold nearly 81.4 million MWh of power, 16.594 billion cu.m. of gas, and more than 29 million tons of steam to industrial and residential customers worldwide. In 2005, Suez’s total revenue grew by 9% to EUR41.5 billion. In February 2006, Suez released a public announcement of its plan to merge with Gaz de France, the French state enterprise that is the leading gas supplier in Europe. The merger is targeted to complete in the second quarter of 2006. The impact on Suez’s holding in GLOW will need to be continuously monitored. Following the listing of GLOW on the SET in April 2005, Suez is committed to a one-year silent period and a continued holding in GLOW of not less than 51% for two years.
Continuous support from Suez-Tractebel Group As GLOW’s major shareholder, Suez has continuously supported the company by nominating a management team to GLOW, thereby providing access to Suez’s experience and technical know-how. Suez and GLOW have an agreement through which Suez will provide a management team and consulting support, and will not directly compete with GLOW in the electricity generation business in Thailand for at least 15 years. Suez is an international industrial and services group that provides businesses, public authorities and individuals with innovative solutions in energy and the environment. Suez offers global solutions in energy and services in North America, the southern cone of Latin America, Asia and the Middle East. It develops, builds and operates energy facilities both in electricity and gas, including liquefied natural gas (LNG). It transports and distributes natural gas and LNG in several countries outside Europe.
Competition from PTT Utilities PTT Utilities Co., Ltd. (PTTU) was established by PTT and its three affiliates to operate and supply utilities to the PTT Group, mainly Thai Olefins PLC (TOC) and The Aromatic (Thailand) PLC (ATC). ATC and TOC are GLOW’s current customers buying 47 MW of electricity and 202 t/h steam under long-term contracts that run until 2010/2011. PTTU is under construction and is expected to start the operation within 2006. Both ATC and TOC will subsequently terminate their contracts with GLOW and buy utilities from PTTU. GLOW recently entered into a 40 MW power supply contract with Vinythai PLC (VNT). The new contract will support the capacity expansion of VNT, which is on schedule to commence operation in mid 2007. Moreover, GLOW continues to seek new contracts both with existing and new customers, especially in the petrochemical industry, as most major operators are expanding.
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News for Investors
FINANCIAL ANALYSIS GLOW’s financial profile is sufficiently strong. Its operating cash flow has been highly predictable due to its long-term contracts with its customers. However, due to its aggressive dividend policy and its growth strategy, the company’s leverage level is expected to remain high at 50%-60% of debt to capitalization in the medium term.
High quality customer profile In 2005, 85% of the company’s total sales came from electricity generation, 14% from steam, and 1% from water products. Contributions from EGAT increased substantially from 43.5% in 2004 to 62.1% in 2005 due to the acquisition of GIPP and GSPP1 in December 2004, as GIPP’s sales were solely to EGAT. Overall, the revenue structure of GLOW moved toward the higher quality component. Table 6: Sales Contribution Portion of Sales Value Power sales to EGAT Power sales to ICs Total power sales Steam sales to ICs Water sales to ICs Total sales
2004 43.5% 34.5% 78.0% 20.4% 1.6% 100%
2005 62.1% 22.5% 84.6% 14.4% 1.0% 100%
Source: GLOW
In 2005, GLOW increased the sales volume of power and steam to ICs by 7.5% and 5.5%, respectively. The rising demand stemmed from the upturn in the petrochemicals industry, which represents the majority of GLOW’s ICs. Due to the persistent rise in fuel prices, the company’s operating income as a percentage of sales slightly declined from 29.4% in 2004 to 29.1% in 2005. After incorporating the higher pretax return on permanent capital (ROPC) from its IPP business, GLOW posted 13.7% ROPC in 2005 compared with 8% in 2003-2004.
Satisfactory liquidity resulting from stable cash generation The company’s earnings before interest, tax, depreciation and amortization (EBITDA) interest coverage decreased from 8.2 times in 2004 to 5.7 times in 2005 as the increase in interest expenses outpaced the increase in EBITDA. However, this level of coverage is more than sufficient. Thanks to stable cash
flow generation, GLOW’s funds from operations (FFO) continues to increase: from Bt2,614 million in 2001 to Bt4,064 million in 2004 and to Bt6,951 million in 2005, incorporating the performance of GIPP and GSPP1. FFO to total debt improved to 25.8% in 2005, the highest level during the past 5 years. FFO to total debt in 2004 was abnormally low, having been distorted by the purchase method which included the acquired assets in the consolidated balance sheet at the end of 2004, while the profit and loss statement didn’t reflect the performance of GIPP and GSPP1 as the acquisition was effective on 15 December 2004.
Refinancing of GIPP In December 2005, GIPP was partially refinanced by converting two tranches of its long-term loan financed by the Export Risk Guarantee Agency (a federal government organization of Swiss Confederation) and L'Office National du Ducroine (Export Credit Agency of Belgium) to commercial bank loans. At the same time, GIPP requested an increase in its loan facility of an additional US$66.5 million. The proceeds will be utilized to refinance approximately Bt2,000 million of GSPP1’s debts, with the remainder used for general requirements. The refinancing will make GSPP1 a debt-free entity, while GIPP’s debt, net of repayment, will increase by Bt2,000 million from previous year. However, the increased amount of debt will not jeopardize the debt servicing ability of GIPP, as the repayment schedule has been extended for three years to match the useful life of the project. Although, GIPP increased its long-term borrowing, total debt of the Group at the end of December 2005 decreased to Bt26,954 million compared with Bt28,604 million in previous year due to the repayment schedule of over Bt3,311 million. Moreover, GLOW as a whole would benefit from the interest saving though increasing interest rate risk exposure since the interest expense of GSPP1’s debt was charged at the margin of 2.75% while the refinancing facility will be paid around 0.9% margin.
Capital structure to balance leverage and shareholders’ yield GLOW’s leverage significantly increased in 2004 due to additional borrowing used to
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News for Investors
finance acquisitions. The ratio of total debt to capitalization increased from 49.1% in 2003 to 58.5% at the end of 2004. However, the ratio improved to 51.9% in 2005 due to the repayment schedule. At the end of 2005, GIPP achieved a partial refinancing, with some additional borrowing to be drawn in 2006. However, total debt to capitalization is expected to improve further, as GLOW
will have principal repayment obligations of Bt3,000 million-5,000 million during 2006-2011, unless the company incurs additional debts. According to GLOW’s policy, the company will balance the benefit of shareholders and maintain leverage at a reasonable level. Dividend payments have been satisfactorily served in the last couple years and this is expected to continue.
Financial Statistics and Key Financial Ratios*
Sales Gross interest expense Net income from operations Funds from operations (FFO) Capital expenditures Total assets Total debts Total liabilities Shareholders’ equity Depreciation & amortization Dividends Operating income as a % of sales Pretax return on permanent capital (%) Earnings before interest, tax, depre. and amort. (EBITDA) interest coverage (times) FFO/total debt (%) Total debt/capitalization (%) * Consolidated financial statements
Unit: Bt million --------------------Year ended 31 December -------------------2005 2004 2003 2002 2001 28,495 15,857 14,811 14,136 13,171 1,468 570 1,016 1,417 1,559 4,314 2,748 1,728 1,947 707 6,951 4,064 3,463 3,540 2,614 3,085 1,395 776 412 623 57,357 53,268 34,820 36,453 37,521 26,954 28,604 16,130 18,942 21,762 32,354 32,994 18,079 21,122 24,312 24,696 20,000 16,742 15,331 13,210 2,577 1,375 1,711 1,570 1,509 1,024 1,602 650 0 0 29.09 29.39 29.49 34.10 29.46 13.71 8.12 8.17 9.72 6.45 5.72 25.79 51.88
8.23 14.21 58.52
4.38 21.47 49.07
3.48 18.69 55.27
2.41 12.01 62.23
_______________________________________________________________________________________ Glow Energy PLC 9 4 May 2006
News for
Unit
Plant Performance Statistics of GLOW 2005 2004
Investors
2003
SPP
IPP
SPP
IPP
SPP
IPP
Net output*
’000 MWhe
8,176
4,561
7,932
5,217
4,116
Availability
%
95.74
83.68
95.47
96.68
7,642 96.02
Forced outage
%
0.41
5.19
0.33
0.67
0.81
3.00
Scheduled outage
%
3.85
11.14
4.20
2.65
3.17
18.35
BTU/kWh eq
8,947
6,953
8,914
6,867
8,846
6,908
Coal-fired BTU/kWh eq 10,206 * Net output of power and steam ** Average heat rate of power and steam
n.a.
10,384
n.a.
10,596
n.a.
78.65
Plant allocated heat rate** Gas-fired
_______________________________________________________________________________________ Glow Energy PLC 10 4 May 2006
News for
Investors
_______________________________________________________________________________________ Glow Energy PLC 11 4 May 2006
News for
Investors
Rating Symbols and Definitions TRIS Rating uses eight letter rating symbols for announcing medium- and long-term credit ratings. The ratings range from AAA, the highest rating, to D, the lowest rating. The medium- and long-term debt instrument covers the period of time from one year up. The definitions are: AAA
The highest rating, indicating a company or a debt instrument with smallest degree of credit risk. The company has extremely strong capacity to pay interest and repay principal on time, and is unlikely to be affected by adverse changes in business, economic or other external conditions.
AA
The rating indicates a company or a debt instrument with a very low degree of credit risk. The company has very strong capacity to pay interest and repay principal on time, but is somewhat more susceptible to the adverse changes in business, economic, or other external conditions than AAA rating.
A
The rating indicates a company or a debt instrument with a low credit risk. The company has strong capacity to pay interest and repay principal on time, but is more susceptible to adverse changes in business, economic or other external conditions than debt in higher-rated categories.
BBB
The rating indicates a company or a debt instrument with moderate credit risk. The company has adequate capacity to pay interest and repay principal on time, but is more vulnerable to adverse changes in business, economic or other external conditions and is more likely to have a weakened capacity to pay interest and repay principal than debt in higher-rated categories.
BB
The rating indicates a company or a debt instrument with a high credit risk. The company has less than moderate capacity to pay interest and repay principal on time, and can be significantly affected by adverse changes in business, economic or other external conditions, leading to inadequate capacity to pay interest and repay principal.
B
The rating indicates a company or a debt instrument with a very high credit risk. The company has low capacity to pay interest and repay principal on time. Adverse changes in business, economic or other external conditions could lead to inability or unwillingness to pay interest and repay principal.
C
The rating indicates a company or a debt instrument with the highest risk of default. The company has a significant inability to pay interest and repay principal on time, and is dependent upon favourable business, economic or other external conditions to meet its obligations.
D
The rating for a company or a debt instrument for which payment is in default. The ratings from AA to C may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within a rating category.
TRIS Rating’s short-term ratings focus entirely on the likelihood of default and do not focus on recovery in the event of default. Each of TRIS Rating’s short-term debt instrument covers the period of not more than one year.The symbols and definitions for short-term ratings are as follows: T1
Issuer has strong market position, wide margin of financial protection, appropriate liquidity and other measures of superior investor protection. Issuer designated with a “+” has a higher degree of these protections.
T2
Issuer has secure market position, sound financial fundamentals and satisfactory ability to repay short-term obligations.
T3
Issuer has acceptable capacity for meeting its short-term obligations.
T4
Issuer has weak capacity for meeting its short-term obligations.
All ratings assigned by TRIS Rating are local currency ratings; they reflect the Thai issuers’ ability to service their debt obligations, excluding the risk of convertibility of the Thai baht payments into foreign currencies. TRIS Rating also assigns a “Rating Outlook” that reflects the potential direction of a credit rating over the medium to long term. In formulating the outlook, TRIS Rating will consider the prospects for the rated company’s industry, as well as business conditions that might have an impact on its fundamental creditworthiness. The rating outlook will be announced in conjunction with the credit rating. In all cases, the outlook assigned to a company will apply to all debt obligations issued by the company. The categories for “Rating Outlook” are as follows: Positive The rating may be raised. Stable The rating is not likely to change. Negative The rating may be lowered. Developing The rating may be raised, lowered or remain unchanged.
For subscription information, contact TRIS Rating Co., Ltd., Office of the President, Tel: 0-2231-3011 ext 500 Silom Complex Building, 24th Floor, 191 Silom Road, Bangkok 10550, Thailand, www.trisrating.com © Copyright 2005, TRIS Rating Co., Ltd. All rights reserved. Any unauthorized use, disclosure, copying, republication, further transmission, dissemination, redistribution or storing for subsequent use for any purpose, in whole or in part, in any form or manner or by any means whatsoever, by any person, of the credit rating reports or information is prohibited. The credit rating is not a statement of fact or a recommendation to buy, sell or hold any debt instruments. It is an expression of opinion regarding credit risks for that instrument or particular company. The opinion expressed in the credit rating does not represent investment or other advice and should therefore not be construed as such. Any rating and information contained in any report written or published by TRIS Rating has been prepared without taking into account any recipient’s particular financial needs, circumstances, knowledge and objectives. Therefore, a recipient should assess the appropriateness of such information before making an investment decision based on this information. Information used for the rating has been obtained by TRIS Rating from the company and other sources believed to be reliable. Therefore, TRIS Rating does not guarantee the accuracy, adequacy, or completeness of any such information and will accept no liability for any loss or damage arising from any inaccuracy, inadequacy or incompleteness. Also, TRIS Rating is not responsible for any errors or omissions, the result obtained from, or any actions taken in reliance upon such information.
_______________________________________________________________________________________ Glow Energy PLC 12 4 May 2006
