Taipower May Boost Bond Sales 50% for Plants as Rivals Stalled

By Yu-huay Sun

Jan. 19 (Bloomberg) -- Taiwan Power Co., the island’s biggest electricity producer, plans to increase bond sales to pay for new generators while the government stalls expansion by rivals Formosa Plastics Group and J-Power.

The biggest issuer of corporate debt in Taiwan plans to sell as much as NT$100 billion ($3 billion) of bonds this year, almost 50 percent more than the NT$67 billion in 2008, Chief Engineer Tu Yueh-yuan said in a telephone interview from Taipower’s Taipei headquarters.

The utility is taking advantage of the lowest interest rates since 2004 and government decisions to delay new power projects by private producers to raise money for plants that will increase generating capacity by 38 percent over the next decade. The securities are backed by the state and yield about one percentage point more than sovereign debt.

“Taipower’s bonds will definitely be very hot,” said Simon Yu, vice president for fixed income at President Investment Trust Corp. in Taipei, which manages NT$50 billion of assets.

Interest rates on Taipower’s five-year bonds fell to 2.15 percent at an auction in November, from 2.6 percent at a March sale, according to the company’s Web site.

The yield on the company’s debt maturing Dec. 30, 2013, declined to 2.1 percent on Jan. 8 from 2.15 percent on Dec. 31, according to Gretai Securities Market, Taiwan’s biggest exchange for bonds. The yield was one percentage point higher than on government bonds of comparable maturity.

‘Very Smart’

Taipower “is very smart” to sell more bonds this year and fix borrowing costs instead of paying a floating rate on bank loans, said Ernest Lee, a Taipei-based debt trader at Mega Securities Co.

The utility needs to borrow NT$200 billion this year to fund spending, including NT$158 billion of investments in power plants and transmission lines, Tu said Jan. 14.

Taipower’s local currency debt is rated Aaa.tw by Moody’s Investors Service, the highest among Taiwanese companies, based on the agency’s local rating scale. Shares of Taipower, 97 percent owned by the government, aren’t publicly traded.

Taiwan’s central bank cut its benchmark interest rate six times since late September to buoy an economy poised to slide into recession. Taiwan’s economy probably grew 1.87 percent in 2008, the slowest since 2001, the statistics bureau said in November.

Falling Demand

The island’s electricity consumption fell 0.6 percent last year, the first decline on record, Taipower’s Tu said. Demand for computer chips and consumer electronics slumped because of the global recession, reducing power use by factories.

The government, which scrapped plans to award permits for new power plants last year, won’t seek fresh bids in 2009, Wang Yunn-ming, the Bureau of Energy’s deputy director-general, said in a Jan. 13 interview. Ventures of Formosa and J-Power, as Japan’s Electric Power Development Co. is known, participated in the canceled auction and had expected bidding to be revived.

The government chose not to award the permits as bidders asked for prices higher than Taipower had planned to pay, the utility said in March.

Mai-liao Power Corp. is controlled by Formosa Plastics Group, the island’s biggest diversified industrial company. Chiahui Power Corp. is 40 percent owned by J-Power, Japan’s largest electricity wholesaler. The ventures are among eight independent thermal generators in Taiwan.

Monopoly Ended

The government awarded rights to build power plants in 1995, ending Taipower’s monopoly, after shortages forced rationing. The utility remains the sole energy retailer.

Independent power producers probably won’t need to add new capacity before 2017 as consumption growth slows, Wang said. Taipower, which accounts for about 80 percent of the island’s generation capacity, can meet demand until then, he said.

Taiwan’s peak electricity demand in summer will probably increase 2.7 percent annually from 2008 to 2017, compared with 3.8 percent in the 2002-2007 period, according to Wang.

“We are now adopting a wait-and-see stance as we believe it’s a matter of time before demand recovers and new plants are required,” Masashi Yamazaki, a J-Power spokesman said by telephone from Tokyo on Jan. 6. “Taiwan seems to have a conservative outlook on electricity demand in years ahead.”

Mai-liao plans to add one generator and “will bid when the government has a tender,” company President Hong Fu-yuan said by phone from Taipei on Jan. 5. “We can only wait now.”

Atomic Plant

Taipower is testing the newest generator at the six-unit gas-fired Tatan plant, which produces about 10 percent of the island’s total capacity. An atomic power station may start commercial operations in 2010, the Department of Nuclear Regulation said in October. The utility may account for 84 percent of the island’s capacity by 2017, Taipower said in a report last month.

The company expects lower fuel costs to help narrow its net loss to NT$35.8 billion this year from about NT$100 billion in 2008, Taipower spokesman Clint Chou said by telephone.

The cost of importing liquefied natural gas fell 10 percent in November from the previous month and power-station coal dropped 5.9 percent, according to the energy bureau.

Falling electricity demand will also help Taipower save money because the company buys power from non-state generators at prices higher than the utility’s retail tariffs.

The utility paid independent thermal producers NT$3.33 per kilowatt-hour for electricity last year, according a Taipower report. That’s higher than the company’s average selling price of NT$2.6 per kilowatt-hour. Taipower has signed 25-year agreements that guarantee earnings for the generators.

“Dwindling business may be a good thing for Taipower,” said Lee of Mega Securities. “They lose money for every kilowatt-hour they sell.”

To contact the reporter on the story: Yu-huay Sun in Taipei ysun7@bloomberg.net