Credit Opinion: Electrabel SA

Transcription

1 Credit Opinion: Electrabel SA Global Credit Research - 02 Jul 2015 Brussels, Belgium Ratings Category Moody's Rating Outlook Negative Issuer Rating -Dom Curr A3 Other Short Term -Dom Curr (P)P-2 Parent: GDF SUEZ SA Outlook Negative Issuer Rating A1 Senior Unsecured Subordinate MTN -Dom Curr A1 (P)A2 Commercial Paper Other Short Term -Dom Curr P-1 (P)P-1 GDF SUEZ Invest International S.A. Outlook Negative Issuer Rating -Dom Curr A2 Contacts Analyst Phone Paul Marty/London Helen Francis/London Monica Merli/London Key Indicators [1]Electrabel SA 12/31/ /31/ /31/ /31/ /31/2010 (CFO Pre-W/C + Interest) / Interest 4.6x 5.9x 4.2x 4.5x 5.3x (CFO Pre-W/C) / Net Debt 23.8% 29.6% 23.1% 28.5% 23.1% RCF / Net Debt 21.7% 27.7% 20.8% 25.5% 22.0% [1] All ratios are based on 'Adjusted' financial data and incorporate Moody's Global Standard Adjustments for Non- Financial Corporations. Source: Moody's Financial Metrics Note: For definitions of Moody's most common ratio terms please see the accompanying User's Guide. Opinion Rating Drivers - Scale and diversity help absorb negative pressure on cash flows from European operations - Contracted assets and hedging policy moderate commodity risk

2 - Strong capital structure a product of GDF SUEZ (ENGIE)'s financial policy - Strategic importance within ENGIE Corporate Profile Electrabel S.A. ("Electrabel") is the leading power utility in the Benelux with a strong position in its core markets of Belgium and the Netherlands. It is 100%-owned by GDF SUEZ SA (A1 negative), whose commercial name is now ENGIE. Electrabel combines most of the operations included within the Energy International and Energy Europe divisions of ENGIE, which accounted for 30% and 16%, respectively, of the group's EBITDA in SUMMARY RATING RATIONALE Electrabel's A3/Prime-2 ratings are based on the scale and breadth of its operations, which include leading positions in power generation and supply in its core markets in Belgium and the Netherlands, as well as a strong international presence. Commodity risk is moderated by a substantial portion of contracted activities and a consistent hedging policy. From a financial risk perspective, we assume that ENGIE will continue to capitalize Electrabel at current solid levels. Finally, the ratings incorporate a degree of uplift because of the company's central importance as a 100% subsidiary within ENGIE, whose top holding company GDF SUEZ is rated A1 negative. DETAILED RATING CONSIDERATIONS SCALE AND DIVERSITY HELP ABSORB NEGATIVE PRESSURES ON CASH FLOWS FROM EUROPEAN OPERATIONS Electrabel's ratings factor in its scale (total assets were EUR73 billion at year-end 2014) and diversity by geography and asset type. These characteristics should continue to moderate earnings volatility in the context of a challenging operating environment in Europe. Electrabel owns and controls most of the generation assets of the Energy Europe and Energy international divisions of ENGIE. These comprise installed generation capacity of 80 GW (net, on a proportionate basis) at year-end 2014, spread across Europe (50%), North America (14%), Latin America (14%), Middle-East, Turkey and Africa (10%), Asia (8%) and Oceania (5%). The company is well diversified within Europe itself where it is the leading generator in Belgium and the Netherlands. In Belgium generation capacity in operation was 9.3 GW at year-end 2014, or around half the country's installed capacity. The scale of its position beyond Europe has left Electrabel less exposed than many of its peers to the adverse effects of the structural changes which are underway in European energy markets. In addition to geographical reach, the A3 rating takes account of the size and granularity of the generation asset base, which helps absorb adverse operational developments, such as local changes to market frameworks or the impact of unusual weather conditions across the portfolio. The ENGIE group's 81 GW net installed generation capacity comprises natural gas (50%), hydro (18%), coal (16%), nuclear (7%) and wind (3%). CONTRACTED ASSETS & HEDGING POLICY MODERATE COMMODITY RISK Electrabel's ratings take account that commodity risk is moderated by the substantial contribution from contracted activities, which we estimate accounted for approximately 50-60% of EBITDA in 2014 although this is expected to further grow going forward. In less liberalised markets outside Europe, North America and Australia, commodity risk is mitigated by contractual arrangements which secure the generator's future revenues through tailored power purchase agreements. Although each is different, these are generally characterised by lengthy tenors, minimum contractually agreed revenue streams, fuel costs hedged by cost pass-through mechanisms and protection against inflation. The ratings also factor in that commodity risk in merchant markets is reduced by the company's hedging policy. ENGIE's strategy is to sell forward a substantial proportion of its power generation on a three year rolling basis: at each year end it will typically have sold forward approximately 90% of the following year's European power output, 60% of output in the year after that, and 30% of output in the third year following. The contribution from regulated assets, which is limited and outside Electrabel's core domestic markets, includes natural gas distribution assets in Hungary and Turkey; and internationally gas transportation and distribution businesses in Argentina, Chile and Mexico.

3 STRONG CAPITAL STRUCTURE A PRODUCT OF ENGIE'S FINANCIAL POLICY Electrabel's financial policy is determined by ENGIE, as its ultimate parent, and currently provides for limited if any upstreaming dividend distributions and a strong capital structure. The conservative financial policy was reflected in the timely measures taken to reduce Electrabel's leverage following its acquisition of the 30% International Power minority interests in July As a result, and despite pressured profitability in European power markets, Electrabel's financial risk profile remains robust with FFO/net debt and RCF/net debt around 24% and 22%, respectively, at year-end The A3 rating incorporates our expectation that ENGIE will maintain its conservative stance towards Electrabel. STRATEGIC IMPORTANCE WITHIN ENGIE Electrabel's A3 rating is based on Moody's evaluation of the company's stand-alone credit strength, combined with some ratings support to reflect its position as a strategically important entity within ENGIE. Electrabel is both a significant contributor to the group's EBITDA and a key asset in its strategy to develop as an independent power producer in fast-growing markets. The A3 rating further incorporates the assumptions that (1) Electrabel's capital structure and credit ratios going forward will continue to be determined by the overall financing strategy of ENGIE and that this will ensure that the company remains solidly capitalized; and (2) borrowings required for future investments of ENGIE including Electrabel will be centralised at the parent company level, except for where local circumstances and company policy favour the use of financing at subsidiary or project level. Since the merger of GDF and Suez in 2008, the group's bond issues have all been made at the parent company level. Liquidity Electrabel's liquidity is based primarily on its strong cash generation capacity, its substantial holdings of cash and marketable securities and its committed bank facilities. At December 2014, Electrabel had EUR8.6 billion of cash and cash equivalents and marketable securities, and EUR813 million in undrawn committed credit lines. None of these facilities contains a default clause linked to covenants or minimum credit ratings. The company has also access to a EUR6 billion Belgian CP programme. Electrabel's liquidity profile is also underpinned by its position within the broader ENGIE group, whose financial policy is founded on the centralisation of financing needs and cash flow surpluses through cash-pooling. We expect that ENGIE will manage intra-group cash flows so as to ensure Electrabel meets comfortably its funding needs. In that context we note that Electrabel has access to ENGIE's EUR4.5 billion five-year syndicated loan facility maturing in March Rating Outlook The negative outlook on Electrabel's ratings reflects the negative outlook on the ratings of GDF SUEZ, its ultimate parent. Drivers of Rating Change The A3 rating is based upon the combination of Electrabel's stand alone credit strength and the support which we incorporate to reflect its central position and importance within ENGIE. As such the A3 rating could be impacted by a number of potential drivers, including (1) Electrabel's own operating performance; (2) the operating performance and credit quality of the overall ENGIE group (please see separate credit opinion on GDF SUEZ for rating drivers); and (3) the future evolution of its capital structure in the context of the wider group's financial policy. Rating Factors Electrabel SA Unregulated Utilities and Unregulated Power Current FY [3]Moody's Month Companies Industry Grid [1][2] 12/31/2014 Forward ViewAs of July 2015 Factor 1 : Scale (10%) Measure Score Measure Score a) Scale (USD Billion) 89 Aa Aa Factor 2 : Business Profile (40%)

4 a) Market Diversification Aaa Aaa b) Hedging and Integration Impact on Cash A A Flow Predictability c) Market Framework & Positioning A A d) Capital Requirements and Operational Performance e) Business Mix Impact on Cash Flow Predictability Factor 3 : Financial Policy (10%) a) Financial Policy Factor 4 : Leverage and Coverage (40%) a) (CFO Pre-W/C + Interest) / Interest (3 Year Avg) 4.8x 4.2x - 5.0x b) (CFO Pre-W/C) / Net Debt (3 Year Avg) 25.3% 20% - 25% c) RCF / Net Debt (3 Year Avg) 23.1% 18% - 23% Rating: a) Indicated Rating from Grid A3 A3 b) Actual Rating Assigned A3 [1] All ratios are based on 'Adjusted' financial data and incorporate Moody's Global Standard Adjustments for Non- Financial Corporations. [2] As of 12/31/2014; Source: Moody's Financial Metrics [3] This represents Moody's forward view; not the view of the issuer; and unless noted in the text, does not incorporate significant acquisitions and divestitures This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on for the most updated credit rating action information and rating history Moody s Corporation, Moody s Investors Service, Inc., Moody s Analytics, Inc. and/or their licensors and affiliates (collectively, MOODY S ). All rights reserved. CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. AND ITS RATINGS AFFILIATES ( MIS ) ARE MOODY S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND CREDIT RATINGS AND RESEARCH PUBLICATIONS PUBLISHED BY MOODY S ( MOODY S PUBLICATIONS ) MAY INCLUDE MOODY S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. MOODY S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL, FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND MOODY S OPINIONS INCLUDED IN MOODY S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY S ANALYTICS, INC. CREDIT RATINGS AND MOODY S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND MOODY S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. NEITHER CREDIT RATINGS NOR MOODY S PUBLICATIONS COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY S ISSUES ITS CREDIT RATINGS AND PUBLISHES MOODY S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR

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