BAKU, Azerbaijan, Nov. 11
By Tamilla Mammadova – Trend:
Georgian Oil and Gas Corporation JSC (GOGC), the 100 percent Georgian government-controlled energy company, has restored its liquidity position to the adequate level with a 217 million euros European Bank for Reconstruction and Development (EBRD) loan to refinance its $250 million Eurobonds maturing in April 2021, Trend reports via the S&P Global.
"We believe the relatively stable earnings from the electricity segment will soften the negative impact of the pandemic in 2020 and 2021. We are therefore affirming our 'BB-/B' issuer credit ratings on GOGC and 'BB-' issue ratings on its debt and removing them from negative CreditWatch, where we placed them on March 24, 2020," the report said.
The stable outlook reflects that on the sovereign, as well as GOGC's relatively sound earnings from the electricity segment, balanced by the sizable investments ahead.
As reported, the new EBRD loan has removed the refinancing risk for GOGC. In September 2020 GOGC finalized an agreement with EBRD on a 217 million euros loan aimed to refinance its upcoming $250 million Eurobond maturity in April 2021. Currently, GOGC has no other external debt except for this Eurobond. The refinancing will greatly improve GOGC's maturity schedule because the EBRD loan will be amortized until 2030. As of now, GOGC has also obtained a 30 million euros loan from German development bank KfW to finance the construction of underground gas storage in Georgia in 2020-2023, which is currently undrawn.
"We think that the COVID-19 impact on GOGC will be manageable, thanks to its electricity generation business. The investment contract for Gardabani-1 thermal power plant (TPP) is not exposed to volume risk because it is based on the return-on-investment principle, which adds to the company's resilience during an economic slowdown. Currently, we think Gardabani-2 TPP will operate with about 70 percent load factor in 2020 and 2021. We also note that, since September, the power station has been operating at nearly full capacity in tandem with the uptick of economic activity in the country," the company said.
GOGC has a good track record of constructing new power stations, on time and on budget, the 230 megawatts (MW) Gardabani- 1 and -2 gas-fired TPPs as examples. Both power plants operate under favorable investment contracts, which have guaranteed USD-denominated returns on investments (Gardabani-1) or tariffs (Gardabani-2).
"We understand that GOGC is considering construction of a third gas-fired unit, mirroring the terms and specifications of Gardabani-2. The plant will be funded by operating cash flows," the report said.
"The second project is the $250 million-$280 million underground gas storage facility, for which GOGC has secured a part of financing with a 30 million euros loan from KfW. We assume that, because of this investment, GOGC will have a strongly negative free operating cash flow of about 100 million lari-150 million lari ($30.1-$45.1 million) annually in 2021-2023. As we understand, to mitigate this, GOGC intends not to pay dividends from 2021," the S&P said.
S&P balances these factors against the risks related to the sizable investment budget, potential cost overruns, weak social gas prices in Georgia, and volatile gas trading margins.
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