Fitch Ratings has affirmed
The agency has also affirmed EGAT's senior unsecured rating at 'BBB+'.
EGAT's ratings reflect its Standalone Credit Profile (SCP) of 'bbb+', which is at the same level as that of the Thai sovereign (BBB+/Stable). We will keep EGAT's ratings equalised with that of the sovereign should its SCP weaken, provided the likelihood of state support remains intact. This is in line with our Government-Related Entities (GRE) Rating Criteria.
The SCP benefits from the group's dominant market position, stable and supportive regulatory framework with a long record and solid financial profile.
Key Rating Drivers
Strong State Linkages: We regard EGAT's status, ownership and control by the Thai sovereign as 'Very Strong'. The state fully owns EGAT, appoints its board and senior management, and directs its investments. We assess the company's support record as 'Strong'. Support has been infrequent in light of EGAT's financial strength, but should be forthcoming if needed, due to its strategic importance in
'Very Strong' Default Implications: We regard the socio-political implications of an EGAT default as 'Very Strong', as the company accounts for around 35% of
Furthermore, EGAT's default would signal risks for
Modest Demand Growth: We expect a 3.0% increase in
Delayed Recovery of Accrued Revenue: We estimate that the recovery of
Pressure to Control Tariff: Power tariff adjustments to recover accrued revenue are likely to be slow in 2024, amid political pressure to cap the tariff at
Solid Financial Profile: We estimate EBITDA net leverage to fall to 1.4x in 2023 (2022: 2.2x, 2021: 1.4x), on account of the recovery of accrued revenue. EBITDA net leverage is then likely to rise to around 1.7x by 2026, driven by large capex plans, though still remaining comfortable for EGAT's SCP. We forecast capex of around
Predictable Regulatory Framework: The regulator reviews the power tariff every four months to adjust for uncontrollable expenses, such as fuel costs and foreign-exchange rate fluctuations. The base tariff, which is charged by power utilities, is reviewed every three to five years. The base tariff aims to reflect the economic cost of electricity supply, secure the financial health and returns of
We expect the regulator to limit sharp changes to tariffs. This can result in instances where higher fuel costs are not fully passed through in retail tariffs. Power utilities have been allowed to recover dues over time when fuel costs started to decline.
Derivation Summary
We assess PLN's status, ownership and control and the financial and socio-political implications of default as 'Very Strong'. Meanwhile, we assess
Meanwhile, we assess PLN's support record and expectations as 'Very Strong', because it operates under a time-tested cost-plus mechanism where any revenue shortfall from the sale of electricity is compensated by the government via regular subsidies and payments.
EGAT's SCP of 'bbb+' is two notches higher than that of
Key Assumptions
Fitch's Key Assumptions Within Our Rating Case for the Issuer:
Electricity sales to increase by 3.3% in 2023, 3.0% in 2024 and around 2.5% thereafter
Energy adjustment charge to follow changes in fuel costs trend, allowing EGAT to gradually recover accrued revenue by 2026
Base tariff maintained at
Average interest rate of around 3% in the medium term
Receivable days to fall to around 80 days by end-2023, before normalising to around 60 by 2025
Dividend receipts of around
Capex of around
Dividend pay outs in the range of 50%-60% of the previous year's net income
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Positive rating action on the sovereign, provided the state's likelihood of support does not deteriorate significantly.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Negative rating action on the sovereign.
For the sovereign rating of
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Public Finances: Inability to stabilise the general government debt ratio; for example, due to an extended period of weaker economic growth or continued spending pressures.
Structural Features: Heightened political disruption on a scale sufficient to alter
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Macroeconomic: An improvement in medium-term growth prospects without a significant rise in non-financial private-sector debt.
Public Finances: A decline in the general government debt/GDP ratio; for example, due to smaller fiscal deficits and/or improving medium-term growth potential.
Liquidity and Debt Structure
Strong Liquidity: EGAT's cash balance of
Issuer Profile
EGAT is a vertically integrated utility in
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
Public Ratings with Credit Linkage to other ratings
EGAT's ratings are directly linked to the credit quality of its parent, the sovereign. A change in Fitch's assessment of the credit quality of the parent would automatically result in a change in the rating on EGAT.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
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