PRESS RELEASE: Thai TRIS upgrades Banpu rating to A vs A-

Thai rating agency TRIS Rating Co, Ltd announced Tuesday it has upgraded the company rating of Banpu PLC (BANPU) and its THB2,500 and THB500 million senior debentures to "A" from "A-" and has assigned a "A" rating to BANPU's THB3,000 million senior debentures.

The ratings reflect BANPU's capable and long experienced management team, its leading position in Thailand's coal market, its continuous progress in integration of recently acquired subsidiaries in the mining business in Indonesia (Indocoal), the diversified base of its coal reserves and its diversification into the power business.

The ratings also take into consideration BANPU's policy to buy political risk insurance to cover its investments in Indonesia. However, risks are inherent in operations in politically unstable Indonesia.

In addition, intensifying competition in the regional coal market and BANPU's aggressive financial profile on a consolidated basis partially offset these strengths.

TRIS Rating reported that BANPU was founded by the Vongkusolkit and Auapinyakul families and started its mining operation in 1983. BANPU has continuously maintained its leading position in the coal mining market in Thailand, holding 43 percent of total market share among private operators in Thailand.

With 20 years experience in the industry, the company has developed a proficient management team that enables the company to compete in international markets. BANPU began its mining operation in Jorong, Indonesia in August 1998. Its coal reserves in Indonesia increased significantly in March 2002 after it converted a loan worth US$9.9 million to PT Sigma Buana Cemerlang (SBC) into equity in PT Centralink Wisesa International (Centralink), giving it 95 percent of Centralink's shares. This enabled BANPU to control and operate four coal reserves, called Indocoal, and gave it an approximate 10 percent share of total coal production in Indonesia ranking it number four among coal producers there.

In addition, having a variety of qualities and specifications of coal from various sources strengthens BANPU's competitive advantage in the international coal market. By adding the Indocoal operation, BANPU boosted coal production capacity from 8.7 million tons per annum to 17.7 million tons. As of December 2002, according to external coal reserve assessor (Steffen Robertson & Kirsten (UK) Ltd.), BANPU had coal reserves totaling roughly 180 million tons, with 130 million tons from Indocoal's coal reserves.

Putting substantial portions of its operation and investments in Indonesia exposes BANPU to higher leverage and greater political risk. However, the investment risk in Indonesia is mitigated by investment insurance.

Competition in the international coal market among major coal operators in the region is intense. China has aggressively expanded its coal exports; its export volume grew roughly 46 percent and 58 percent in 2000 and 2001 respectively. Among coal mining operators in Indonesia, the five top players control approximately 70 percent of total production in Indonesia in 2001.

TRIS Rating said that in 1993, BANPU moved strategically into the power sector to establish itself as a pioneer in private power generation. The company began the development of two Independent Power Producer projects totaling 2,047 MW. These projects, a 700 MW gas-fired combined cycle power plant and a 1,347 MW coal-fired power plant, were structured through joint venture companies, Tri Energy Co., Ltd. and BLCP Power Ltd., respectively.

The high investment burden in BLCP will be one of the major capital expenditures for BANPU in the future. The company's 14.99 percent stake in Ratchaburi Electricity Generating Holding PLC as of September 2002 provides stable dividends to the company.

BANPU's operating income before depreciation and amortization as a percentage of sales increased sharply from 22.8 percent during June 2000-July 2001 to 35.4 percent during July-December 2001, mainly because of higher coal prices in the international market.

However, this ratio dwindled to 19.7 percent during January-September 2002, mainly because of falling coal prices in the international market since May 2002 and because BANPU increased production in Indonesia, which has higher royalty fees than Thailand. The ratios of earnings before interest, tax, depreciation and amortization interest coverage and funds from operation-to-total debt during January-September 2002 were 4.4 times and 8.0 percent (non-annualized) respectively.

BANPU's financial leverage increased after consolidation of Indocoal. As a result, BANPU's total debt to capitalization ratio increased continuously from 52.2 percent in June 2001 to 54.4 percent in December 2001 and to 59.1 percent in September 2002, TRIS Rating said. (*)