RATING RATIONALE
The debentures will be issued by XPCL directly, and the proceeds from these debentures and from the proposed Thai baht senior unsecured guaranteed debentures (BBB+(EXP)/Stable) will be used to refinance the existing baht debentures issued in 2022 by XPCL.
The debenture holders will be senior in nature, similar to the existing unsecured fixed-rate baht debentures with bullet payments as well as fully amortising floating-rate secured bank loans issued in US dollars and baht. The refinancing risk at the maturity of the debentures from 2028 to 2030 will be alleviated by the long remaining tenor of the asset's concession period and XPCL's access to banks.
XPCL's ratings reflect our credit quality assessment of the hydropower project, which started operation in 2019 and benefits from long-term fixed-price offtake agreements with Electricity Generating Authority of Thailand (EGAT, BBB+/Stable) and Electricite du Laos (EDL). Project cash flow is exposed to hydrology risk in the absence of availability-based payments. At the same time, XPCL's ratings are constrained by the limited hydrological data available for the project.
We assess the ratings above our internal assessment of the Laos sovereign's credit profile and the related transfer and convertibility risks, as the project's structural features mitigate the country, transfer and convertibility risks associated with operating in Laos. These include XPCL's run-of-the-river nature and primary transmission line that connects to Thailand's grid. The line evacuates the majority of the power generated, reducing operational risk from local conditions in Laos. The project's proven, low-complexity technology also minimises labour intensity.
The concession agreement approved by Laos shields XPCL from regulatory risk arising from changes in laws, including compensation for adverse economic impacts. It also mitigates transfer and convertibility risk by allowing XPCL to hold offshore bank accounts in Thailand for all revenue and debt repayments in both US dollars and baht. These measures limit exposure to changes in foreign-currency regulations in Laos. However, any change in our internal assessment of Laos's credit profile could still affect debentures' ratings.
We believe EDL's interest in the hydropower project, through its indirect 20% shareholding in XPCL, is aligned with the power sector's strategic importance to Laos. Power exports to Thailand are the country's largest source of export revenue and Laos has a memorandum of understanding with Thailand to supply 10,500MW of power, including XPCL's project.
KEY RATING DRIVERS
Established In-House O&M Team - Operation Risk: Midrange
XPCL utilises conventional, commercially proven technology and has been operational for about 5.5 years. A dedicated in-house team oversees routine maintenance, while operations and maintenance (O&M) is supported by technical advisors and the engineering team at CK Power Public Company, XPCL's parent. The plant is well-maintained and consistently delivers reliable performance.
We believe the availability of replacement contractors is facilitated by the presence of multiple plants along the Mekong River. XPCL manages and reviews its spare parts inventory annually. In addition, a major maintenance reserve account is kept for major overhauls that are scheduled every 12 years. However, our factor assessment is limited to 'Midrange', because operating cost forecasts have not been validated by an independent technical advisor. XPCL holds comprehensive insurance policies that cover losses from property damage and business interruption.
Limited Operating History, Hydrology Risk - Revenue Risk, Volume: Midrange
XPCL's energy generation and revenue are reliant on the Mekong River's water flow, with no payments from offtakers for plant availability during periods of lower flow. XPCL has projected hydrology internally since it commenced operation in 2019, using actual data from 2009 that reflects the stabilising effect of upstream Chinese dams, which help maintain water flow during the dry season. The original hydrology study benefited from extensive historical data, but did not account for the effects of upstream Chinese dams.
Hydrology risk is alleviated by power purchase agreement (PPA) provisions that allow XPCL to designate a low hydrology year as a "drought year" once every 15 years, and by a provision to carry forward surplus energy generated beyond committed levels for up to 10 years.
Fixed Tariff, Long-Term PPAs - Revenue Risk, Price: Stronger
XPCL contracts its entire capacity through long-term PPAs with EGAT and EDL, shielding the project from merchant price volatility. The tariff structure lacks inflation protection, but the EGAT PPA tariffs are in US dollars and baht for the primary energy component, offering a natural hedge against XPCL's US dollar bank loans. Energy payments under the EDL PPA use a fixed baht tariff.
Bullet-Payment, Medium-Term Debentures - Debt Structure: Midrange
The fixed-rate debentures will be issued in three separate tranches, with maturities of three, four and five years, scheduled for repayment between 2028 and 2030. These debentures will be baht-denominated and will be unsecured, similar to the existing debentures in baht. They will be supported by a debt service reserve account and a joint waterfall mechanism shared with other debts. The debentures will also include a restrictive financial covenant concerning the debt/equity ratio. The refinancing risk for these debentures is lessened by XPCL's bank access and a lengthy tail period of about 17 years until the PPAs reach maturity.
XPCL's current consolidated debt structure primarily comprises fully amortising, floating-rate secured bank loans in US dollars and baht, alongside unsecured, fixed-rate baht debentures with bullet payments.
Financial Profile
We assume XPCL will issue debentures during 2025-2027 to refinance its current debentures issued in 2022 and 2023, with the new debentures to be repaid by 2032. Our base case includes yearly maximum gross electricity generation based on the company's estimate, stressed by 2.5% for the EGAT portion. We also incorporate higher insurance premiums and interest rates, in line with XPCL's estimates, on the new debentures to be issued during 2025-2027. The debt-service coverage ratio (DSCR) averages 1.20x under our base case over the debt repayment period from 2025 to 2032.
Our rating case stresses the yearly maximum gross electricity generation by 5.0% for the EGAT portion and a similar 50% stress for the energy-related EDL portion, in addition to a 5% stress on O&M and major maintenance expenses. The DSCR averages 1.15x over 2025-2032. The credit metrics remain comfortable at the current rating level even in a stress scenario, assuming no revenue accruing from EDL.
PEER GROUP
XPCL can be compared with JSW Hydro Energy Limited (senior secured rating: BB+/Stable). JSW Hydro operates two run-of-the-river hydropower projects: its 1,091MW Karcham Wangtoo plant on the Satluj River and 300MW Baspa II plant on the Baspa River, both located in the state of Himachal Pradesh, India.
We assess volume risk at JSW Hydro as 'Stronger', owing to its regulated business model that ensures medium-term profitability if its projects remain available, regardless of actual off-take. In contrast, XPCL faces hydrology risk, restricting its volume risk assessment to 'Midrange'. JSW Hydro's rating case DSCR is 1.77x, against 1.15x for XPCL. Despite JSW Hydro's robust financial profile, its rating is constrained by uncertainty around the terms of future debt refinancing and systemic risk from its exposure to state-owned power-distribution companies, justifying a three-notch rating difference with XPCL.
XPCL can also be compared with the financing vehicle, Clean Renewable Power (Mauritius) Pte. Ltd (CRP, senior secured rating: BB-/Stable), wholly owned by Hero Future Energies Asia Pte. Ltd. CRP's renewable energy portfolio includes wind (46%) and solar (54%) projects. Its rating case DSCR stands at 1.29x. A portion of CRP's revenue is derived from Indian state-owned distribution companies. This could cause liquidity pressure and justifies the one-notch rating difference with XPCL.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
- Annual average DSCR persistently falling below 1.10x.
- Any significant adverse changes to Fitch's internal evaluation of transfer and convertibility risks for Laos.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
A longer operating record that provides greater assurance on the project's hydrology, combined with annual average DSCR exceeding 1.15x on a sustained basis and no increased exposure to Laos's local conditions or transfer and convertibility risk.
TRANSACTION SUMMARY
The proceeds from the non-guaranteed debentures as well as proposed guaranteed debentures totalling the equivalent of THB4,000 million will be used by XPCL to refinance a portion of the existing baht debentures that were issued in 2022. The fixed-rate unsecured non-guaranteed debentures will be issued in three tranches with maturities of three, four and five years, set to mature in 2028, 2029, and 2030, respectively.
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.
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 www.fitchratings.com/topics/esg/products#esg-relevance-scores.