EGAT International Co. Ltd. Assigned 'BBB+' Rating; Outlook Stable

  • EGATi operates as the investment arm for its parent EGAT on behalf of the Thailand government. We view EGATi as an extension of EGAT and a core subsidiary. EGATi is likely to benefit from an extremely high support from the Thailand government via its parent.
  • EGAT's essential role as the sole transmission services provider in Thailand, the entity's dominance in power generation, and the transparent and stable regulatory framework in Thailand should support EGAT's solid earnings profile and moderate leverage.
  • We are assigning our 'BBB+' long-term issuer credit rating to EGATi.
  • The stable outlook on EGATi over the next 12-18 months reflects the outlook on EGAT, and our expectation that EGATi will remain a core member of the group and continue to receive support from the government through the parent.
SINGAPORE (S&P Global Ratings) Dec. 20, 2018--S&P Global Ratings said today 
that it had assigned its 'BBB+' long-term issuer credit rating to EGAT 
International Co. Ltd. (EGATi). The outlook is stable. 

EGATi is the sole energy and power investment platform for international 
expansion under Electricity Generating Authority of Thailand (EGAT). EGAT is 
wholly owned by the Thai government and is the sole electricity transmission 
service provider and the largest electricity generator in the country.

The rating on EGATi reflects our assessment of EGAT's credit profile because 
we consider EGATi to be a core member of the EGAT group.

We view EGATi as an extension of EGAT. All EGATi's management, operations, 
capital expenditure (capex) funding, and investments are largely approved by 
EGAT, and Thailand's Ministry of Finance, Ministry of Energy (MOE), and 
Cabinet. We believe EGATi has an extremely high likelihood of extraordinary 
support from the Thai government if needed. The government supports EGATi via 
equity infusions from EGAT or the Cabinet-approved budget for EGATi.

We expect EGAT to maintain its dominant role in Thailand's power market and 
leverage to be moderate over the next 12-24 months. A transparent and stable 
regulatory framework supports EGAT's solid earnings profile. We also believe 
that the likelihood of extraordinary government support to EGAT is extremely 
high. However, EGAT is smaller than most of its rated peers in the region and 
does not enjoy diversification benefits. Its transmission and generation 
assets are only based in Thailand and generation is over dependent on gas.

A disruption in EGAT's operations, which could be triggered by financial 
difficulties, is likely to have major social, economic, and political 
implications. The entity is also the sole purchaser of electricity from other 
generators, to supplement its own supply. We expect EGAT to maintain its 
strong market position due to its "enhanced sole buyer" model.

In our view, the Thai government has satisfactory oversight of EGAT, and would 
provide timely support to the entity to deliver on its public service 
obligations of providing a stable electricity supply. EGAT is a wholly owned 
government entity with active government involvement via the MOE in terms of 
supervision, strategy, operations, funding, and financial management. Under 
the Electricity Generating Authority of Thailand Act, the government is 
obligated to cover any deficiencies in EGAT's cash flows, including debt 
repayments and interest expenses. The government's obligation to prevent a 
financial crisis reinforces our expectation of continued majority ownership by 
the government.

Thailand's transparent and stable regulatory framework should continue to 
support EGAT's ability to generate predictable revenue and earn reasonable 
returns on investments. The Energy Regulatory Commission (ERC) regulates 
electricity tariffs. Significant changes to the regulatory framework are 
unlikely, given ERC's established tariff-setting philosophy. We expect the 
regulator to remain generally supportive of utilities in Thailand, which 
supports the low volatility in cash flows from these utilities.

EGAT's revenues are protected from increases in fuel and power purchase costs, 
because the entity passes on such increases to its customers. However, the 
implementation of tariff revisions is not automatic, and requires the approval 
of a government-appointed review committee.

We note that EGAT is obligated to pay for electricity from other power 
producers as part of its power purchase agreements, notwithstanding high 
reserve margins in Thailand. We have factored these obligations in EGAT's 
total debt.

We see high cash flow visibility for EGAT over the next few years because the 
entity's revenue is underpinned by regulated earnings. In addition, EGAT's 
financial profile will likely remain stable over the next few years supported 
by a strong balance sheet.

We believe execution risk is manageable for EGAT, given its stable record in 
operations and handling major capex. We do not expect material capital 
spending over the next few years because the actual capex over the last few 
years was lower than we anticipated.

We could proportionally consolidate additional debt for EGAT should we assess 
the likelihood of EGAT providing support to the joint-venture projects of its 
subsidiaries or associated companies, such as EGATi and Ratchaburi Electricity 
Generating Holding Public Co. Ltd.

The stable outlook on EGATi reflects the outlook on EGAT and our expectation 
that EGATi will remain a core member of the group and continue to receive 
support from the Thailand government through EGAT.

The outlook also reflects our expectation that EGAT will continue to benefit 
from ongoing and extraordinary government support, and generate predictable 
cash flows with a ratio of FFO to debt of just over 25%.

We could lower the rating on EGATi if we see signs of a loosening of the 
company's ties with its parent, or if our assessment of support from the 
government for EGATi is lower, both of which we view as unlikely in the next 
12-24 months.

We may also lower the rating on EGATi if we downgrade EGAT, which could happen 
if we lower the sovereign credit rating on Thailand (foreign currency 
BBB+/Stable/A-2; local currency A-/Stable/A-2).

We could lower the rating on EGAT if its stand-alone credit profile (SACP) 
falls by more than four notches. 

We may lower our assessment of EGAT's SACP by one notch if: (1) the entity 
departs significantly from its role as the sole transmission network provider 
and dominant electricity generator under the  "enhanced sole buyer" model, 
which could weaken our assessment of EGAT's business operations and quality of 
earnings; or (2) Thailand's regulatory framework has any significant adverse 
change; or (3) EGAT's cash flow adequacy deteriorates substantially, with the 
ratio of FFO to debt falling below 23%.

We are unlikely to upgrade EGATi in the next 12-24 months, given the rating on 
EGAT is equalized to the foreign currency sovereign rating on Thailand.

However, over the longer term, we could raise the rating on EGATi if we 
upgrade EGAT, and EGATi remains a core subsidiary of the group and continues 
to receive support from the government through EGAT. This will also require a 
raising of the foreign currency sovereign rating on Thailand. Our assessment 
of EGAT's SACP could improve if the entity's cash flows improve such that the 
ratio of FFO to debt above 35% on an ongoing basis.
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