03.12.2014, 15:36
Long-term issuer default rating of Ekibastuz GRES-1 is Stable
OREANDA-NEWS. Fitch Ratings has
assigned Kazakhstan-based electricity producer Ekibastuz GRES-1 LLP (Ekibastuz
GRES-1) a Long-term foreign currency Issuer Default Rating (IDR) of 'BB+'. The
Outlook is Stable. Fitch has also assigned the proposed domestic senior
unsecured notes of up to KZT20bn a 'BB+(EXP)' expected rating. A full list of
ratings actions is at the end of this comment.
The ratings reflect Ekibastuz GRES-1's strong financial profile and market position, currently supportive regulatory regime and access to cheap coal supplies. However, Ekibastuz GRES-1 requires significant capex and the planned investment programme will likely result in negative free cash flow (FCF) and funds from operations (FFO) adjusted leverage levels increasing to about 1.4x on average over 2014-2017 based on Fitch's assumptions.
Ekibastuz GRES-1's ratings also benefit from a one-notch uplift reflecting our assessment of its links with its 100% shareholder - JSC Samruk-Energy (Samruk- Energy, BBB-/Stable), which is in turn 100% state-owned via National Welfare Fund Samruk-Kazyna JSC (Samruk-Kazyna, BBB+/Stable).
KEY RATING DRIVERS
One-Notch Uplift for Parental Support
Fitch considers the strategic, operational and to a lesser extent, the legal ties between Ekibastuz GRES-1 and its shareholder to be relatively strong and incorporates a one-notch uplift for parental support into the company's 'BB+' rating. While there are no guarantees between the company and its parent, we believe that the cross-default provisions in Samruk-Energy's USD500m Eurobonds could be triggered by a default on Ekibastuz GRES-1's domestic bonds.
Strategic Importance
The strategic importance of Ekibastuz GRES-1 is underpinned by its integral role in Samruk-Energy's target of becoming the leading power generation company of Kazakhstan (BBB+/Stable). Ekibastuz GRES-1 is also the most cash flow generative (representing over 80% of 9M14 EBITDA) and the largest (about 60% of electricity output) asset owned by Samruk-Energy, providing the geographic exposure to northern Kazakhstan, near the border with Russia (BBB/Negative), an important export market.
Favourable Tariffs At Present
Fitch notes that generation tariffs, which are set to cover fixed and variable costs and cover majority of capex requirements, are currently approved until end-2015. The post-2015 electricity generation tariff regime is uncertain. Existing regulation provides for implementation of a two-tier tariff regime from 2016, with the government setting cap tariffs for energy and capacity component for a seven-year period with possible annual revisions. Fuel and other cost inflation will continue to be reflected in energy prices and the capacity component of the tariff will provide for a return on investments. However, tariff levels have not been set yet by the authorities. The electricity capacity market should ensure economically sound returns on investments and provide incentives for the construction of new generation assets or expanding current capacity. The company expects that the government will approve tariffs for 2016 and beyond during 1H15.
Cheap Fuel Supports EBITDA
Kazakh coal prices are significantly below international market rates, reflecting the low calorific content and high ash content of coal used domestically as well as low transport costs. To protect energy affordability, the coal price charged to utilities is reflected in tariff caps for electricity. An unexpected and significant increase in the price of coal above Fitch's current inflationary estimates of 6%-8% annually would have a negative impact on EBITDA if not reflected in electricity tariffs, although we consider this unlikely.
Intensive Capex to Increase Leverage
Fitch expects Ekibastuz GRES-1 to continue generating healthy cash flows from operations of around KZT43bn on average over 2014-2017. However, FCF is likely to remain negative at around KZT27bn on average during the same period due to ambitious investment plans. The total capex plan amounts to KZT248bn over 2014-2017, and we also assume dividend payments of KZT8bn annually. We expect capex to be partially debt funded, therefore we anticipate FFO gross adjusted leverage to increase to about 1.4x on average over the same period from 0.3x at end-2013. The company's investment programme is aimed at renewing and replacing its existing generation assets. The company intends to increase its available capacity by 1,000MW by 2017 to 4,000MW. It also expects to achieve an increased load factor reliability and compliance with environmental requirements.
Strong Financial Profile
Ekibastuz GRES-1's 'BB' standalone rating is underpinned by its solid credit metrics. With an EBITDA margin of 65% on average for 2010-2013, double digit coverage ratios and FFO gross adjusted leverage below 1x in the same period. Despite some deterioration of the company's financial profile over the next three years due to the ambitious capex programme, we expect it to remain well positioned compared with its CIS and international peers. Fitch acknowledges that Ekibastuz GRES-1's forecast credit metrics are strong for its rating and we believe that it offsets the risks inherent in the company's operating environment and business profile, including tariff uncertainty after 2015.
The Largest Power Plant in Kazakhstan
Ekibastuz GRES-1 is one of the largest power plants in CIS and the largest power plant in Kazakhstan, with 21% share of total installed capacity and 15% in power supply in the country. The coal-fired power plant with nominal installed capacity of 4,000MW (8 units by 500MW each) is currently operating 3,000MW. However, the company's single site operations are constraining its business profile.
Imminent Refinancing Needs
Fitch views Ekibastuz GRES-1's liquidity as weak. All of the company's debt at end-9M14 was short-term amounting to KZT23.4bn against cash and cash equivalents of KZT6.8bn as of 27 November 2014. A substantial part of outstanding debt is represented by KZT10bn 12% bonds maturing on 29 December 2014 with repayment according to the bond terms up to 30 days thereafter.
Parent Support Expected
Ekibastuz GRES-1 anticipates refinancing the bond by a new bond issue or a loan. Failing this, available liquidity may need to be supplemented by unrestricted cash available at JSC Samruk-Energy (KZT34.7bn as of 27 November 2014). The parent has confirmed to Fitch its ability and willingness to provide its liquidity to GRES-1 on a timely basis for the bond maturity. The parent provided temporary working capital funding to the company during 2014.
Ongoing Funding Needs
The expected negative FCF over 2014-2017 will represent a continued external funding requirement. The company has unused committed credit facilities of KZT2bn from Sberbank (BBB/Negative). Cash balances are mostly held in local currency with domestic banks (91% as of 9M14) including Halyk Bank of Kazakhstan (BB/Stable) and Kazkommertsbank (B/Stable).
The ratings reflect Ekibastuz GRES-1's strong financial profile and market position, currently supportive regulatory regime and access to cheap coal supplies. However, Ekibastuz GRES-1 requires significant capex and the planned investment programme will likely result in negative free cash flow (FCF) and funds from operations (FFO) adjusted leverage levels increasing to about 1.4x on average over 2014-2017 based on Fitch's assumptions.
Ekibastuz GRES-1's ratings also benefit from a one-notch uplift reflecting our assessment of its links with its 100% shareholder - JSC Samruk-Energy (Samruk- Energy, BBB-/Stable), which is in turn 100% state-owned via National Welfare Fund Samruk-Kazyna JSC (Samruk-Kazyna, BBB+/Stable).
KEY RATING DRIVERS
One-Notch Uplift for Parental Support
Fitch considers the strategic, operational and to a lesser extent, the legal ties between Ekibastuz GRES-1 and its shareholder to be relatively strong and incorporates a one-notch uplift for parental support into the company's 'BB+' rating. While there are no guarantees between the company and its parent, we believe that the cross-default provisions in Samruk-Energy's USD500m Eurobonds could be triggered by a default on Ekibastuz GRES-1's domestic bonds.
Strategic Importance
The strategic importance of Ekibastuz GRES-1 is underpinned by its integral role in Samruk-Energy's target of becoming the leading power generation company of Kazakhstan (BBB+/Stable). Ekibastuz GRES-1 is also the most cash flow generative (representing over 80% of 9M14 EBITDA) and the largest (about 60% of electricity output) asset owned by Samruk-Energy, providing the geographic exposure to northern Kazakhstan, near the border with Russia (BBB/Negative), an important export market.
Favourable Tariffs At Present
Fitch notes that generation tariffs, which are set to cover fixed and variable costs and cover majority of capex requirements, are currently approved until end-2015. The post-2015 electricity generation tariff regime is uncertain. Existing regulation provides for implementation of a two-tier tariff regime from 2016, with the government setting cap tariffs for energy and capacity component for a seven-year period with possible annual revisions. Fuel and other cost inflation will continue to be reflected in energy prices and the capacity component of the tariff will provide for a return on investments. However, tariff levels have not been set yet by the authorities. The electricity capacity market should ensure economically sound returns on investments and provide incentives for the construction of new generation assets or expanding current capacity. The company expects that the government will approve tariffs for 2016 and beyond during 1H15.
Cheap Fuel Supports EBITDA
Kazakh coal prices are significantly below international market rates, reflecting the low calorific content and high ash content of coal used domestically as well as low transport costs. To protect energy affordability, the coal price charged to utilities is reflected in tariff caps for electricity. An unexpected and significant increase in the price of coal above Fitch's current inflationary estimates of 6%-8% annually would have a negative impact on EBITDA if not reflected in electricity tariffs, although we consider this unlikely.
Intensive Capex to Increase Leverage
Fitch expects Ekibastuz GRES-1 to continue generating healthy cash flows from operations of around KZT43bn on average over 2014-2017. However, FCF is likely to remain negative at around KZT27bn on average during the same period due to ambitious investment plans. The total capex plan amounts to KZT248bn over 2014-2017, and we also assume dividend payments of KZT8bn annually. We expect capex to be partially debt funded, therefore we anticipate FFO gross adjusted leverage to increase to about 1.4x on average over the same period from 0.3x at end-2013. The company's investment programme is aimed at renewing and replacing its existing generation assets. The company intends to increase its available capacity by 1,000MW by 2017 to 4,000MW. It also expects to achieve an increased load factor reliability and compliance with environmental requirements.
Strong Financial Profile
Ekibastuz GRES-1's 'BB' standalone rating is underpinned by its solid credit metrics. With an EBITDA margin of 65% on average for 2010-2013, double digit coverage ratios and FFO gross adjusted leverage below 1x in the same period. Despite some deterioration of the company's financial profile over the next three years due to the ambitious capex programme, we expect it to remain well positioned compared with its CIS and international peers. Fitch acknowledges that Ekibastuz GRES-1's forecast credit metrics are strong for its rating and we believe that it offsets the risks inherent in the company's operating environment and business profile, including tariff uncertainty after 2015.
The Largest Power Plant in Kazakhstan
Ekibastuz GRES-1 is one of the largest power plants in CIS and the largest power plant in Kazakhstan, with 21% share of total installed capacity and 15% in power supply in the country. The coal-fired power plant with nominal installed capacity of 4,000MW (8 units by 500MW each) is currently operating 3,000MW. However, the company's single site operations are constraining its business profile.
Imminent Refinancing Needs
Fitch views Ekibastuz GRES-1's liquidity as weak. All of the company's debt at end-9M14 was short-term amounting to KZT23.4bn against cash and cash equivalents of KZT6.8bn as of 27 November 2014. A substantial part of outstanding debt is represented by KZT10bn 12% bonds maturing on 29 December 2014 with repayment according to the bond terms up to 30 days thereafter.
Parent Support Expected
Ekibastuz GRES-1 anticipates refinancing the bond by a new bond issue or a loan. Failing this, available liquidity may need to be supplemented by unrestricted cash available at JSC Samruk-Energy (KZT34.7bn as of 27 November 2014). The parent has confirmed to Fitch its ability and willingness to provide its liquidity to GRES-1 on a timely basis for the bond maturity. The parent provided temporary working capital funding to the company during 2014.
Ongoing Funding Needs
The expected negative FCF over 2014-2017 will represent a continued external funding requirement. The company has unused committed credit facilities of KZT2bn from Sberbank (BBB/Negative). Cash balances are mostly held in local currency with domestic banks (91% as of 9M14) including Halyk Bank of Kazakhstan (BB/Stable) and Kazkommertsbank (B/Stable).
Комментарии