BAKU, Azerbaijan, July 16
By Tamilla Mammadova – Trend:
Fitch Ratings has assigned Georgia Global Utilities JSC's (GGU) proposed senior unsecured notes an expected rating of 'B+(EXP)'/'RR4', Trend reports referring to Fitch.
The amount, coupon and final maturity will be determined at the time of issuance. The senior unsecured rating is in line with GGU's expected Long-Term Issuer Default Rating (IDR) 'B+(EXP)', which has a Stable Outlook, as the bonds will constitute direct, unconditional and unsecured obligations of the company.
"The notes' expected rating reflects the proposed guarantees and covenants. The proceeds are to be largely used for refinancing existing debt and funding eligible green projects. The assignment of the final rating is contingent on the receipt of final documents conforming to the information received to date," the report said.
As reported, the IDR of GGU reflects the consolidated credit profile of its regulated water utility business (Georgian Water and Power LLC, GWP), and its 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.
GGU is a holding company and consolidates GWP, Rustavi Water LLC, Mtskheta Water LLC, Gardabani Sewage Treatment LLC, Saguramo Energy LLC, Georgian Engineering and Management LLC, Qartli Wind Farm LLC (QWF, 21MW (megawatt)) wind power plant, Svaneti Hydro JSC (Svaneti, 50MW) hydro power plant (HPP), Hydrolea LLC (21MW HPPs) and Georgian Energy Trading Company LLC (GETC, electricity trading arm of the group).
"We estimate post-refinancing pro-forma funds from operations (FFO) net leverage (adjusted for connection fees) at 5.9x for 2020 and to average about 4.3x for 2020-2023, compared with our negative rating sensitivity of 4.5x. External debt is to be located at GGU level with upstream guarantees by key subsidiaries," the Fitch said.
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.
The remaining revenue is from power generation and sale, which is exposed to volume and price risks in the merchant power segment. This is offset by PPA-based power sales (estimated at about 40 percent of the power segment per year until 2023) and diversification supported by 96 MW of installed renewable capacity. While GGU is exposed to merchant activity, about 80 percent of revenue generated through bilateral agreements is in August to April of each year, when the electricity market is in deficit.
"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.
As reported, 2020 results will be affected by the coronavirus outbreak, via a sharp contraction of Georgia's economy by an estimated 4.8 percent in 2020.
Fitch expects GGU to breach FFO net leverage (excluding connection fees) negative sensitivity of 4.5x, before recovering to within the threshold by 2021.
"GGU is expected to hold a majority of its debt in foreign currency, resulting in exposure to forex risk. However, this risk is partly mitigated by both PPA sales and bilateral contracts being denominated in US dollars, which is expected to be sufficient to cover coupon payment but not principal. We estimate GGU's EBITDA to average about 40 percent in USD, with the remaining in Georgian lari," the report said.
---
Follow the author on Twitter: @Mila61979356