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Fitch estimates Georgia Global Utilities regulated water revenue

Business Materials 3 July 2020 18:31 (UTC +04:00)
Fitch estimates Georgia Global Utilities regulated water revenue

BAKU, Azerbaijan, July 3

By Tamilla Mammadova - Trend:

Fitch Ratings has assigned Georgia Global Utilities JSC (GGU) an expected Long-Term Issuer Default Rating (IDR) of 'B+(EXP)', the Outlook on the IDR is Stable, Trend reports referring to Fitch.

The rating reflects the consolidated credit profile of the company's regulated water utility business segment (Georgian Water and Power LLC, GWP), and GGU's fairly higher-risk renewable electricity business, which is nevertheless supported by long-term power purchase agreements (PPAs).

Overall size, asset quality, forex (FX) risk, operating and regulatory environment remain key rating constraints.

As reported, the assignment of the final rating is contingent on GGU completing its refinancing according to both company's plans and our current assumptions.

"GGU is a holding company and consolidates GWP, Rustavi Water LLC, Mtskheta Water LLC, Gardabani Sewage Treatment LLC, Saguramo Energy LLC, and Georgian Engineering and Management Company LLC. In addition, GGU will also consolidate Qartli Wind Farm LLC (QWF, 21MW) wind power plant, Svaneti Hydro JSC (Svaneti, 50MW) hydro power plant (HPPs), Hydrolea LLC (21MW HPPs) and Georgian Energy Trading Company LLC," the Fitch said.

Fitch expects GWP to be the most significant operating company for GGU at 72 percent of average revenue and 60 percent of average EBITDA per year for 2020-2024.

Fitch estimates GGU's regulated water revenue at about 60 percent (adjusting for connection income in the water segment) on average per year for 2020-2024.

"We believe long-term cash-flow visibility is enhanced by the price certainty within GGU's PPAs. All electricity output from about 40 percent of its total installed capacity is contracted with PPAs expiring between 2022 and 2034; the weighted-average remaining life of the portfolio is around 11 years," the Fitch said.

The recent change in electricity regulation calls for all large industrial/commercial customers with monthly electricity consumption of 5 GWh to register as direct customers, as part of the deregulation.

"We expect this to increase liquidity in the market as the deregulated market share of total electricity demand increases notably," the Fitch said.

The wholesale price mainly consists of the weighted average of all imports and PPAs. In 2019, the weighted average price of PPAs averaged about 5.4 USc/kWh, while imports averaged about 4.8-5 USc/kWh.

"Assuming demand decreases in 2020 due to the pandemic-driven economic shock, the calculation of the market benchmark price will include a lower share of imported price because all domestic generation comes before imports in terms of merit order. This would increase the weight of PPAs in the calculations, slightly increasing the market prices. We estimate market power prices to average 14.8 tetri/kWh (4.87 cents/kWh) up to 2023," Fitch noted.

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