Phoenix Power Company SAOG (PHPC) Earnings Call Transcript & Summary

Thank you.

So we'll answer them in a structural way, means regarding -- so first, we'll start with the loan, okay? So as we have disclosed, we have done a financing -- refinancing agreement, which is effective from 29 June 2026, and the last repayment of loan is on June 2023. And as per the disclosure, we have mentioned that the loan is hedged, 95%, which is consistent with what we have now. The terms of the financing is, of course, the most competitive term in the market, which is the normal DSA requirements and these things, which are consistent with -- as compared to our current CTA. So the terms and these things are same. So this is regarding the loan, okay? Now regarding the repayment of loan, it will be a structured repayment. No cash sweep, nothing is there. So it's a structured straight-line kind of amortization of loan. So we are not expecting any cash sweep. So to answer your question regarding dividend, so there will be -- of course, company has a dividend maximization policy where company wants to distribute as much dividend as possible. So it will be a consistent payout based on this structure. So this is regarding the loan. Now regarding PPA, as Mr. Ahmad has mentioned, that we'll be doing a CapEx, which will be from the proceed of the new loan. This will be used for LTE and the enhancement of capacity of the plant. And we have disclosed that our plant capacity will be increased post PPA. But a very critical thing is the PPA will start from 2029. PPA is not effective from today. So we are under the current PPA in 2026, '27, '8. The new PPA will start from April 2029. So as we have disclosed in our disclosure of the enhancement of capacity that the capacity will be increased in the new PPA. So we'll have a consistent cash flows based on the existing PPA based on the existing capacity for the next 2 years to 3 years. So in that case, any enhancement will happen, it will happen at a later year. And regarding the cash flows and this thing, of course, for impairment, Mr. Ahmed has explained that we believe there is no change in the impairment strategy as compared to last year as of now we believe. But again, it will be subject to external auditor review and other things will be, of course, disclosed in the audited financials also. We'll be having -- we'll be disclosing this in the financials what we have.

Yes, thank you. I'll just to add to the PPA terms where you asked the change. Actually, I can say that is the majority of the terms are the same might be the only thing that has been discussed and negotiated with the PPAs, the tariff and also the terms extension of the period. But the majority of the terms are -- I can say or I can it is almost in line with the previous PPA. So there is no major change on it. And the currency we are paying the loan is in U.S. dollars. So we took a U.S. dollar facility and it's based in U.S. dollars. And we are protected in the PPA, the new PPA as same as the previous PPA. So as I mentioned, there is not much change in the terms of the new PPA. Yes. So also the other payments are consistent with the previous structure. So there is no change in the payments. for long-term service agreement with Siemens also, we are the same currency in euro. We are retaining the same OEM Siemens for the long-term service agreement. So the majority contracts are in place are in consistent with others. We just extended for the same terms of the new PPA. -- the same -- or I can say there was no much change on the terms. Matthew can give you now the mic, if you want to comment on this answer, if you have anything, you want to clarify more, I can give you this chance. So Mohammed, can you give him?

Yes. And what's the interest on this new loan?

Actually, as I mentioned, there is also something between us and the banks, but we get a very competitive interest rate and was also hedged 95% as [ Syed ] mentioned. So we are seeing that the same structure has been followed.

So what's the effective interest rate after the hedging? So I don't want to know what's the exact margin, but what's the effective interest rate that you will be paying after the hedging?

Yes. I think that can range from -- give me one second. Yes. It can range from 5.5% to 6%. All right. And what's the current capacity -- contracted capacity and what's the new capacity in the new PPA?

As we mentioned and -- sir also explained to that, I mean, the current PPA, there's no change in the capacity of the current PPA. The current PPA is valid till 2029. So there is no change on that. And the new PPA will be from 2029 onwards. So we want to enhance our capacity. As we mentioned, might be adding around 5% on the capacity on the current capacity. post PPA. That will be through, I mean, upgrading some of the machines that will enhance the capacity. However, that will be taken place only after 2030.

Okay. And what will be the annual debt service amount that you will end up paying under the new financing agreements after a full drawdown of this loan?

So as a normal rate, actually, we have with the bank is 1.2. So that has been also consistent with previous rate we have. So we agreed with the lenders to continue with the same...

Just to add one thing, we have refinanced the loan from today's date. So effectively, the loan started from today. The repayment will also start from today because we have repaid to our existing lender, and we have entered into the contract with the new lender. So the refinancing will start from today, not for 15 years. So it's -- technically, you can see 17 years of refinancing instead of 15 years starting from the new people. So we have paid off the existing lender and then we have entered into the contract with the new lender as you're referring to the $720 million, which includes the CapEx amount, I think, which we have explained to Abas that out of this $720 million already CapEx is also factored into this.

Mohammed, any further questions?

Yes, Mr. [ Brishan ].

I just wanted to clarify one point regarding the debt service, just for my calculations, I think the number mentioned is OMR 28 million. If you can just confirm what that number is. Is it OMR 28 million? Is it OMR 26 million? And more so more importantly, the current debt service is $44 million. The reason I'm asking the new debt service is the difference between what you are paying earlier on and what is the current service? Is that what we'll get as extra dividend in the current PPA expires? So OMR 4 million minus, let's say, OMR 28 million base case. Is that what we'll get till March '29 in terms of excess dividend, if you could just clarify that?

Okay. For which company you are working?

I represent a local family office here in Oman.

Okay. So as we have mentioned that we will go for the dividend maximization policy because whatever CapEx is required, we will be drawing down from the bank, and we'll be using this as a CapEx and LTE thing. So ultimately, company will not retain any cash if it is not required for the expansion or anything of the plant. So if any extra cash will be distributed as dividend at the end of the day. This is as per our policy. So as I mentioned, the loan will be repaid. You are right. So the loan will be repaid in 17 years instead of the previous loan where we have to repay this $300 million in 3 years. Now the extended loan will be repaid up to June 2023. So in that case, of course, the debt service will go down, which will have a positive cash impact on the company. And as Mr.[ Aman ] has mentioned that this dividend maximum policy will be applied accordingly.

Mohammed, any further questions?

I think we have answered all 3 questions, which you have mentioned the screen regarding CapEx, I think Mr. Ahmad has mentioned. Regarding the increase of capacity, we have mentioned and disclosed also that there will be increase in capacity, but post PPA. And regarding the operational assumption, as Mr. Ahmad has mentioned, there will be no change in the operational assumption under the new PPA and the old PPA. So almost consistent. And as you know, that most of our money comes on capacity only. The other things are mostly passed through. So PPC will not be impacted mostly from these changes, if any.

You are kind of on mute, Abas?

Mohammed, can you please not mute me again until Ahmed and I had a chat because it's extremely frustrating as an investor to get muted when I don't have a chance of follow-up. So please do not mute me again until Ahmed and I have had a chat, please. I appreciate it. Ahmed -- just a couple of questions, follow-up. Now your existing capacity charges -- your existing debt service is $44 million as per the new debt service, and I understand I've been tracking this sector from 2008, so I'm quite aware of the sector. You're effectively -- if you look at the dividend maximization policy, what I'm looking at is effectively the OMR 6 that you're making from the current PPA as per the old debt service, and then there's an additional OMR 10 impact from the new debt service because you're going to save this because there's a new debt that's going to be repaid over 18 years instead of the existing debt that was going to be repaid over the term of this PPA. So for the next 3 years, effectively, I'm expecting you guys to make OMR 16 per year. And given that your comment is that OMR 16 should be able to be distributed to investors. Because what I'm not able to understand is we are not discussing anything in the nonpublic space. So I don't understand why there's so much hesitation to declare numbers that are already in the public domain. All we are asking for is clarification as investors. We have significant shareholding as minorities.

Abas? And at some --yes, please. Just to clarify one thing, we are not hesitating to answer the question. But sometimes we cannot -- I mean, give you what is -- I mean, we cannot have it now, okay? You have done some analysis in your side. I cannot say that your analysis is right or wrong. So what we are having here, we are disclosing. So our policy, as mentioned previously, whatever cash we are having, we are not expanding. We are not a company that we are going to expand. So whatever we have a cash that left, which is not required in the business normal, we're going to distribute -- of course, I mean, that will -- depends on the approval we see from the Board and regulations. But our policy, as we mentioned, is to maximize the out ratio. So whatever we have as a cash for the shareholder, that will be distributed. So this is one thing. You might do some analysis, another company do another analysis. We are not doing here as a future analyst. We are what we are having we disposed.

Okay. Now tell me this when you mentioned that energy charges are a pass-through, but for the last 2 years, I'm seeing that the revenue that you make from energy is higher than the gas consumption expense that you pay. Now that is an addition over and above the PPA. Now that number was OMR 5 million last year, which effectively means 3 an extra dividend. So it's not a straight pass-through, right? I would imagine that there's an upside to some of these charges. The same question I had for the O&M expenses because you mentioned that your load factor for the first half has come down because there's renewables coming in and the power demand is being spread across different power plants as well. So what my question is based on my understanding of a PPA contract where everything is a pass-through. But when I see your numbers, your notes and I see there's a OMR 5 million additional sort of revenue that you make or the net revenue that you make just from energy charges alone because your revenue is OMR 5 million higher than your expense. So these are upside to the PPA, right, assuming that the plant is working in an efficient manner, your gas consumption, your heat rate because there are a lot of technical aspects to these plants, right? But there is potential for upside. Is my understanding correct? What that number will be? We'll discuss it later as and when the PPA gets renewed. But what I'm seeing is I'm seeing your historicals and I'm seeing an upside. So I just wanted to clarify that. Okay. So it requires a bit detailed explanation.

So overall, your concept is correct that if plant is running in an efficient way, there might be some upside, but it is not up to the magnitude of OMR 5 million in Oman. This is one thing because energy charge includes our fuel charges, what we are having for gas. This is our revenue, plus it includes the variable energy charges, which is ED also. So EED it's not a very apple-to-apple comparison if you are taking energy charges and netting off with the fuel charges from cost side because fuel charges in the cost side only have gas payments. So the other impact of variable comes in O&M cost, which is -- again, which is in a different line item. So there is a potential upside and there is an upside if the plant is new, running in a very efficient way and maintain in a very good way. But again, it is not up to the magnitude of OMR 5 million per year. So overall, yes, your understanding is correct. This is.

Yes. Just to add, I mean, of course, I mean, we are doing to -- of course, I mean, for maintenance and operation of the plant. we try to enhance our efficiency. As mentioned, there is some bulk on that -- because of the efficiency we have worked in the past years to raise the efficiency of the machines. But I cannot imagine that will be reached to OMR 5 million. plus also our maintenance regime depends on the running hours. So sometimes because you don't control it, you plan an outage in a certain year that might be cost you some amount. But however, because that's linked to the running hours or the dispatch, so that might be having some impact on that as well.

Okay. And my next question is, we are sitting now in August and by September end, before September 30, this OMR 81 should be in the hand of shareholders based on the external edit time line that you have because that's a direct engagement, right? So that INR 81ais should be in the -- assuming there is no negative audit opinion, that should come in the hand of the shareholders by September end. And as a follow-up, for the remaining term of the current PPA, which is till March 2029, effectively, you have 3 years. Now whatever that number is OMR 16, OMR 15, OMR 17, depending on our analysis and what others have done, that effectively should come in each year. So let's say, in the calendar year '27, we should get the numbers that we make for '26, '28 we' get for '27 and '29 we'll get for '28. So effectively, what I'm looking at it is OMR 16 to OMR 17 every year for the next 3 years. Then the new PPA comes in, which we are not sure about the tariff yet. We have made some analysis based on what we understand based on the value in use that you did not have to take an impairment versus the others. And I'm hoping when the external auditors write about this because in Sembcorp's case, they've actually declared the actual capacity charges for the new -- you should see the notes of Sembcorp Salalah. I think -- so then what happens is as minority investors, we have the same information as the majority because tomorrow, for example, if, let's say, one of your majority investors decides to come and sell in the market, they have more information than us, right? Because this plant is not like a bang muster. It's not going to exist forever. It has a finite term. So then there is no lock-in when it comes to the majority investors, your promoters. Now tomorrow if your promoter decides to come and sell the share in the market, he has more information than I have as a minority. And that's the reason if you notice the tone of the call and some of the frustration expressed by the analyst community, it's not personal. If the idea is that guys give us the same information that your majority has access to because tomorrow, your majority has the option of coming and selling in the market, and they have more information than I have as a minority. And that's the reason a lot of the questions are trying to ascertain are trying to figure out what the new dividends will be because as a power company, as a utility company, there is no analysis of future growth. I'm effectively in a contracted business model. After 15 years, maybe I can make an assumption that the plant will work for another 9 years, maybe it will not. But the point is, that is very important for me to analyze the company because every day that the stock trades in the market, I have to decide, should I buy, sell or hold. And that decision is based not on sentiment like it's with, let's say, a bank muster. In this case, it's simple math when it comes to your contract. And that's -- I just wanted to give you some context into why Joyce me and everyone else on the call is so adamantly asking you about the term. So you can appreciate where we are coming from. It's not just to ask more information or get something that you don't want to give. But for us, when we buy and sell shares and we advise our clients and we manage portfolios, we need to have access to the same information, let's say, that some of the majorities have because tomorrow, there is no law that is stopping them from selling. So we make up our minds to see how it makes sense.

Yes. Just to your question to this comment. Actually, whatever we give is -- we disclose to the majority and the minority as well. So we are following the regulations that are set by the authority. And we are asked for any -- I mean, material disclosure we disclose in the market. So we keep following this, not just for you, but also for the other investments. So if there's any major or material information that will be disclosed in the market. For this...

And what about the dividend time line that I discussed, OMR 81 coming in by September end Insha'Allah if everything goes well?

Yes. Actually, we proposed earlier to be distributed. But however, there was a requirement from the authority to do the audit for the 6 months. So once that has been completed, of course, I mean, I cannot say it will be completed in next day. But once that has been completed or if the things has been goes smoothly and there's nothing, we are, I mean, also counting the requirement deadline for each, I mean, even. So if that has been done as we have set the deadline, we expect the AGM will be hold on end of September or 1st of October. So that will be the cutoff date for the dividends. Okay.

And then I'll still be getting 3 years of dividends as per the old PPA, right? And my analysis -- forget the number, but my logic about the savings in debt service is correct. That's the way to look at it.

Yes. As we mentioned, we are not here to give any future perspectives or any future announcement. So we are requested to, I mean, present the results for the 6 months. And we are not in a position, as I mentioned, to give anything else as disclaimer we have at the beginning of the presentation, this should not be, I mean, counting us to call for any investment or might be a suggestion for purchasing issue. So we stick on providing the information as it is and whatever we have as of now.

Okay. And the 3 years dividend part, that you can confirm, right? As per the current PPA, forget the OMR 81, we are still eligible for another 3 years. As we mentioned in the past, and we mentioned now and every time. So whatever we have, we'll distribute it to the shareholders. We are not keeping the cash in the company. And our policy is to maximize our...

Any questions Mohammed?

Right. But you haven't mentioned about 2 of my questions. One is on the OMR 81 dividend that was assumed to be sweeping the entire retained earnings. So will you be considering adding the additional 6 months profit into the retained earnings? Will that be considered for dividend distribution because you have already mentioned that there is -- you have a policy of shareholder return...

Just so that the answer to that, I mean, it has not been yet considered. And as I mentioned, might be -- as of now, what we have is we propose only OMR 81 days that will be left to the -- I mean, Board of Directors later on if they want to decide it. And of course, the authority if they accept it. So that is from the company perspective has not been considered.

Okay. And in the future, beyond 2029, since your debt service will be somewhere around $25 million plus and your retained earnings will be very limited for distribution of cash. Have you ever considered about anything like a capital -- potential capital reduction or something like that?

No. As of now, there is no consideration for that as of now. So we expect that the dividends will be distributed over the period until the end of the new PPA. So we haven't considered any -- as of now, any equity redemption.

Thank you once again for joining us today. We appreciate your participation and your valuable questions. This presentation will be available on the MSX website for your reference. We wish you a pleasant day. Thank you all.