Thursday, Jun 13, 2002
Gas District Cooling (KLIA) Sdn Bhd’s (GDC KLIA) reaffirmed ratings reflect the captive offtake demand for its chilled water and electricity; strong shareholder support; low operation risk and improved financial performance. The ratings are, however, moderated by the credit quality of its offtakers and its high, though declining debt leverage.
GDC KLIA operates and maintains the District Cooling System/co-generation plant that supplies chilled water and electricity to facilities at the Kuala Lumpur International Airport (KLIA), under a 20-year government concession (effective from January 1998). Strong shareholder backing is provided by PETRONAS who has an effective shareholding of 72.5%.
The utilities supply arrangement is governed by an Airport Facilities Agreement between GDC KLIA and the operator of KLIA, Malaysia Airport Sepang (MA Sepang) Sdn Bhd. Under the Agreement, up to 25MW of GDC KLIA’s electricity rated capacity is sold to MA Sepang whilst 70% of its chilled water production is taken up by KLIA’s core facilities with the remaining 30% consumed by Privatized Facilities.
The tariff for chilled water incorporates a demand charge and a variable charge. Annual revenue derived from the demand (or capacity charge) lends an element of stability to the company’s cash flow. The variable charge is based upon consumption and is expected to contribute an increasing proportion of operating revenue, going forward. The sale and purchase agreements for chilled water and electricity allow GDC KLIA to pass through increases in gas costs to its users. Given that gas cost forms the bulk of the company’s operating cost, the automatic pass through mechanism mitigates the company’s exposure to escalating gas prices.
The facilities at the KLIA complex are dependent on the company for the supply of chilled water to meet their air-conditioning needs. GDC KLIA’s major offtakers are Malaysia Airports Bhd., Malaysian Airline System and KL Airport Services Sdn Bhd. Although the company’s captive customer base ensures a low level of demand risk, GDC KLIA’s collection arrears which were particularly high in FY1999 and FY2000 continues to be a moderating factor in MARC’s assessment of offtake risk.
GDC KLIA’s operational risk is considered low from the perspective of equipment reliability. Project assets are in good physical condition and are being well maintained. As in the previous year, the plant’s operating performance and reliability statistics during the period under review remained within acceptable levels compared to the guaranteed or tested data for the equipment.
KLIA’s current average chilled water requirement at 17,500 Refrigerant Tonne (RT), is still below the plant’s total installed capacity of 30,000 RT despite an improvement in utilization rate. This is expected given that KLIA has not reached its capacity in terms of passenger load. The airport currently receives about 14.6 million passengers a year but can handle up to 25 million passengers per annum. Assuming a compounded annual growth rate (CAGR) of passenger traffic of 5% per annum henceforth, KLIA would only reach its capacity in 2008.
GDC KLIA’s profitability measures continue to improve in 2001; driven by rising sales of chilled water and electricity. Operating profit margin consequently rose to 29.0% (FY00: 28.6%) supported by the decline in financing cost. Cash flow interest coverage strengthened during the review period to 5.6 times (FY00: 3.3 times) and with no major capital expenditure planned in the immediate future, increasing amounts of free operating cash flow generated should enhance debt coverage measures. Debt leverage; as represented by the ratio of debt to equity, remains high for the rating category, despite improving to 2.2 times. Given the progressive repayment of debts, retention of earnings and absence of major capital expenditure, GDC KLIA’s debt leverage should trend downwards in the medium-term.
GDC KLIA operates and maintains the District Cooling System/co-generation plant that supplies chilled water and electricity to facilities at the Kuala Lumpur International Airport (KLIA), under a 20-year government concession (effective from January 1998). Strong shareholder backing is provided by PETRONAS who has an effective shareholding of 72.5%.
The utilities supply arrangement is governed by an Airport Facilities Agreement between GDC KLIA and the operator of KLIA, Malaysia Airport Sepang (MA Sepang) Sdn Bhd. Under the Agreement, up to 25MW of GDC KLIA’s electricity rated capacity is sold to MA Sepang whilst 70% of its chilled water production is taken up by KLIA’s core facilities with the remaining 30% consumed by Privatized Facilities.
The tariff for chilled water incorporates a demand charge and a variable charge. Annual revenue derived from the demand (or capacity charge) lends an element of stability to the company’s cash flow. The variable charge is based upon consumption and is expected to contribute an increasing proportion of operating revenue, going forward. The sale and purchase agreements for chilled water and electricity allow GDC KLIA to pass through increases in gas costs to its users. Given that gas cost forms the bulk of the company’s operating cost, the automatic pass through mechanism mitigates the company’s exposure to escalating gas prices.
The facilities at the KLIA complex are dependent on the company for the supply of chilled water to meet their air-conditioning needs. GDC KLIA’s major offtakers are Malaysia Airports Bhd., Malaysian Airline System and KL Airport Services Sdn Bhd. Although the company’s captive customer base ensures a low level of demand risk, GDC KLIA’s collection arrears which were particularly high in FY1999 and FY2000 continues to be a moderating factor in MARC’s assessment of offtake risk.
GDC KLIA’s operational risk is considered low from the perspective of equipment reliability. Project assets are in good physical condition and are being well maintained. As in the previous year, the plant’s operating performance and reliability statistics during the period under review remained within acceptable levels compared to the guaranteed or tested data for the equipment.
KLIA’s current average chilled water requirement at 17,500 Refrigerant Tonne (RT), is still below the plant’s total installed capacity of 30,000 RT despite an improvement in utilization rate. This is expected given that KLIA has not reached its capacity in terms of passenger load. The airport currently receives about 14.6 million passengers a year but can handle up to 25 million passengers per annum. Assuming a compounded annual growth rate (CAGR) of passenger traffic of 5% per annum henceforth, KLIA would only reach its capacity in 2008.
GDC KLIA’s profitability measures continue to improve in 2001; driven by rising sales of chilled water and electricity. Operating profit margin consequently rose to 29.0% (FY00: 28.6%) supported by the decline in financing cost. Cash flow interest coverage strengthened during the review period to 5.6 times (FY00: 3.3 times) and with no major capital expenditure planned in the immediate future, increasing amounts of free operating cash flow generated should enhance debt coverage measures. Debt leverage; as represented by the ratio of debt to equity, remains high for the rating category, despite improving to 2.2 times. Given the progressive repayment of debts, retention of earnings and absence of major capital expenditure, GDC KLIA’s debt leverage should trend downwards in the medium-term.