Taipower ratings announced for new bond issue

Sherry Chien, The China Post

Taiwan Ratings Corp. yesterday announced a rating of “twAA” for Taiwan Power Co.’s (Taipower) upcoming NT$15 billion unsecured corporate bond. It also rated ‘twAAA’ on the company’s corporate credit rating and ‘twA-1’ for its short-term debt rating. Taipower is the largest power generator and the sole provider of power transmission and distribution services in Taiwan. The ratings reflect its dominant industry position with limited competition and strong government ownership. The government now holds a 97-percent sstake of the company. The company is strategically important to Taiwan’s economy because the island’s reliance on electricity for economic growth and the lack of domestic fuel sources. Due to a lack of tariff increase, large capital expenditure requirements, and rising production costs might offset these strengths. Taipower operated 30,136 mw of generating capacity and owned 72 power plants throughout the island as of December 31, 2001. Over the past ten years, growth in electricity demand has averaged 6.6 percent; however, due to the current economic slowdown and the relocation of some manufacturing business to mainland China, the demand rate declined to around 4 percent.

In the past, the government has aimed to maintain stable rates to support industry and stimulate economic growth. Now, the government has the responsibility for setting electricity prices as well.

“The company’s load factor has been maintained at between 68 percent and 70 percent, while its availability factor is between 85 percent and 90 percent. With the slowdown in demand, its reserve margin has grown to 13.2 percent in 2001, compared with 7.7 percent in 1998,” said Taiwan Ratings Corporation. Taipower’s monopoly position is expected to remain unchanged for a while as the pace of deregulation has been slow.

In 1995, the independent power producers (IPPs) were being first introduced. Until now, there were only three out of 15 IPP projects are commercially operational, seven have been cancelled and the other five are scheduled to come on stream by 2004.

The government has considering privatizing Taipower; however, the complications relating to the legislative process and political difference might delayed the privatization.

The total losses caused by the suspension of the Taipower’s fourth nuclear power plant estimated at NT$3 billion. Because of the increasing size of the project, depreciation of the New Taiwan dollar, and construction delays, the company still faces substantial cost overruns. For the completion of the fourth nuclear power plant, the company needs to ask government’s approval to increase its budget. “Taipower’s financial profile has continued to deteriorate. Total debt to total capital increased to 46% in December 2001 from 37% in June 1996, while funds from operations to total debt decreased to 23% from 36% over the same period. Further deterioration in the company’s financial performance is possible to the extent that tariff increases are not granted to offset the effect of rising production costs and growing capital expenditure,” said TRC. TRC also added “total capital expenditure for 2002-2005 is expected to amount to about NT$776 billion, of which an estimated 63% will be spent on transmission and distribution, and an estimated 36% will be used for power generation.” The outlook of Taipower rating is stable because of the limited competition and delayed deregulation.