Sembcorp Industries' power arm eyes debt refinancing

It would result in a one-off charge of around $30m.

Sembcorp Industries' power arm Sembcorp Gayatri Power Ltd (SGPL) is expected to refinance its debt this year, bringing about a one-off financing charge estimated at $30m.

According to UOB KayHian, the refinancing will seek to lower the interest rate on SGPL’s debt, which currently stands at 12.9-13.8%.

SGPL’s earnings are highly sensitive to bank interest rates, with every 100ppt decrease in interest rates adding $12m-16m to net profit.

"An interest rate reduction to 10-11% will be positive to SGPL. However, this is offset by higher-than-expected other costs," said UOB KayHian.

Here's more from UOB KayHian:

We estimate SGPL’s debt at $1.5b, translating into $197m in interest expense every year. This represents ~28% of SGPL’s annual expenses. So a reduction will greatly help earnings. A reduction from current levels to 10-11% will be positive for SGPL in 2018 as this swings the company into profit, based on a revision to our estimates for 2018.