Ratings agency RAM this week upgraded the long and short term credit ratings of Sri Lankan power company Vidullanka to "A-" and "P2," respectively. Further, the outlook for the long term rating was deemed stable.
According to RAM's statement; "Vidullanka operates two mini-hydro power plants ('MHPPs') with a combined capacity of 5.2MW, and has further invested in a joint venture MHPP with a capacity of 1.2MW. The company offloads the electricity generated to the Ceylon Electricity Board... To further diversify its income sources the company has diversified into provision of consultancy on mini hydro projects through [Vidul Construction Limited (VCL)]; this includes feasibility, design, construction, commissioning and maintaining of power projects. Moreover VCL is venturing into product development; as a first step company has now started manufacturing control panel required for the power projects."
Also revealed was that the upgrade was a result of an "improving financial profile and conservative funding strategy." This included improved debt levels with the gearing ratio, or long term debt to shareholder's equity, improved from "0.32 times in FYE 31 March 2009 ('FY Mar 2009') to 0.24 times in FY Mar 2010 (end-September 2010: 0.17 times)."
It also emerged that a "sturdy financial profile, established track record, and favourable contract terms" had indicated by "Vidullanka’s operating profit before interest and tax ('OPBIT') margins improved over the period to 52.22% by FY Mar 2010 (FY Mar 2009: 49.47%) and further to 69.39% by end-September 2010. The wider margins were supported by greater power generation. This translated to better return on capital, which augmented to 30.33% and 21.04% over the same period (FY Mar 2009: 15.70%). With the company also retiring debts using internally-generated capital, its fund from operations ('FFO') debt coverage ratio has strengthened from 0.73 times to 1.29 times. Moreover, with easing debt levels, the company’s gearing ameliorated to 0.17 times by end-September 2010 from 0.32 times as at end-FY Mar 2010."
Meanwhile, a more conservative management policy was suggested by "efforts to mitigate its dependence on its two main power plants" and, in terms of new projects, funding only "60% of project cost with borrowings."
Additionally, also opined was that, in the short run, "debt levels are expected to recede further as long-term borrowings pared down using proceeds from a rights issue completed in November 2010."
RAM also suggested that, further out, gearing levels, or net debt as a proportion of shareholder's equity, would "remain below 0.45 times, even after factoring additional borrowings for new projects."
At the same time, RAM also noted that the rating was constrained by "Vidullanka’s dependence on weather patterns for revenue generation and renewal risks associated with its [power purchase agreements]." |
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