The credit rating of TGC-1 (hereinafter, the Company) is based on the Company's adequate market position, good business profile and corporate governance, good geographical diversification and business profitability, low leverage, and good liquidity. The rating is restricted by, among other things, the medium business scale and the regulatory risks. The rating is supported by a high likelihood of support from Gazprom (AAA(RU), outlook Stable), the key shareholder of the Company.
TGC-1 is the second largest electric power generating company (after Rosenergoatom) and the largest heat power generator operating in the north-west of Russia, including Saint Petersburg, the Leningrad Region, the Murmansk Region and the Republic of Karelia. The total installed capacity of the Company's power plants is 6.9 GW, including 2.9 GW for HPPs and 4.0 GW for CHPPs, and 13.5 thousand Gcal/h. In the regions of its presence, the Company occupies 35.4% of the electric power market and 43% of the heat power market. The Company also exports electric power to Norway and Finland, and the share of such exports in the Company's revenues amounted to 3% in 2018.
The TGC-1 group of companies includes three branches and two subsidiaries responsible for electricity and heat generation and heat energy transmission.
The main shareholders of the Company are Gazprom energoholding LLC (51.79%) and Fortum Power and Heat Oy (29.45%).
New TPPs and HPPs drive high profitability and low price risks. The Company's FFO margin before interest and taxes declined to 25% in 2018 against 26% in 2017. ACRA expects that the margin may drop to 23% in 2019 and further to 19% in 2021 on the back of expiration of 10-year power supply contracts for newly commissioned TPPs. In the future, the margin is expected to stabilize at around 19%, with a possible growth that may be driven by capital investments aimed at the upgrade and phased replacement of fixed assets. In 2018, the Company's revenue reached 92.5 RUB bln, which is 5.5% higher than in 2017. This was driven by the price growth in the unregulated electricity market, the increase in the regulated tariffs for electric power and heat energy, and higher volume of exported electric power. According to ACRA's estimates, the Company's revenue for 2019 may grow by 2.4% to RUB 94.7 bln on higher prices for electricity and heat energy. The Company has virtually no overdue receivables, as in 2018, the collection rate of electricity charges was 98.6% and the collection rate of heat charges was 98.4%. The trade receivables declined to RUB 12.9 bln in 2018, a 7% drop against 2017. ACRA expects that the Company's trade receivables will continue to decrease. The Company is subject to certain regulatory risks, as the share of electricity supplied by the Company on the regulated tariff basis is 35% and that for heat energy is 100%.
Moderate investment commitments. In 2018, the Company's investments intended to upgrade its fixed assets grew by 15% to RUB 10.9 bln w/o VAT (against RUB 9.5 bln w/o VAT in 2017). All current capital expenses are used to rebuild and upgrade the core power generating and transmitting assets. In 2018, the ratio of investments to revenue amounted to 12%, same as in 2017. ACRA expects that in 2019–2021, the annual average ratio will grow to 13% and the investments will reach RUB 11.9 bln. The wear and tear of the Company's fixed assets is assessed as moderate.
Adequate free cash flow. In 2018, the Company's FCF declined by 11.7% against 2017 (or RUB 5.1 bln against RUB 5.7 bln). According to ACRA's forecast, in 2019, the FCF may decline two-fold to RUB 2.5 bln, following an increase in investments. In 2020, the FCF is expected to grow up to RUB 3.9 bln, however in 2021, it may wane due to the cease of payments under power supply contracts. In the future, the investments may ramp up after the new state support program for TPP modernization (also known as KOMMod) is started.
Low leverage and good liquidity. As of November 18, 2019, the Company's debt portfolio was equal to RUB 8.4 bln (or 0.4x of FFO before net interest), and the total debt, including pension obligations, amounted to RUB 9.4 bln (0.5x of FFO before net interest). The Company's liabilities include bank loans, a corporate loan and exchange-traded bonds (44%, 9% and 47%, respectively) and are expected to be repaid evenly in 2020–2022. The loans are long-term and ruble-denominated loans. The debt portfolio is well diversified by lender. At the end of 2018, the total debt of the Company (including pension obligations) amounted to RUB 19.9 bln. According to ACRA's estimates for 2019–2021, the total debt, including pension obligations, is expected to decrease down to an average annual value of RUB 15.5 bln (0.8x of FFO before net interest).
The Company's liquidity is assessed as good. As of November 18, 2019, the amount of funds held on the Company's accounts was RUB 2 bln. Moreover, the Company may rely upon available credit lines and loans with the total amount of RUB 46 bln.
High likelihood of extraordinary support from the key shareholder. The Company's share in Gazprom's revenue is 1%. The Company's importance for Gazprom is based on the role played by the power sector in the Gazprom's business, as well as by the strong position of the Company in supplying electric power to St. Petersburg, the second largest economic center of Russia. In the period from 2013 to 2017, the Gazprom group lent RUB 31 bln to the Company to finance its investment program and refinance loans. Gas supplies from Gazprom account for about 36% of the Company's expenses. On December 13, 2019, the Company became a part of the treasury and liquidity framework of Gazprom.
The Stable outlook assumes that the rating will most likely stay unchanged within the 12 to 18-month horizon.
A positive rating action may be prompted by:
A negative rating action may be prompted by:
Support: Group — one notch up to the SCA.
No outstanding issues have been rated.
The credit rating has been assigned under the national scale for the Russian Federation and is based on the Methodology for Credit Ratings Assignment to Non-Financial Corporations Under the National Scale for the Russian Federation, the Methodology for Analyzing Relationships Between Rated Entities and the State, the Methodology for Analyzing Member Company Relationships within Corporate Groups, and the Key Concepts Used by Analytical Credit Rating Agency within the Scope of Its Rating Activities.
The credit rating of TGC-1 was first published on January 22, 2018. The credit rating and its outlook are expected to be revised within one year following the publication date of this press release.
The credit rating is based on data provided by TGC-1, information from publicly available sources, as well as ACRA’s own databases. The credit rating is solicited, and TGC-1 participated in its assignment.
No material discrepancies between provided data and data officially disclosed by TGC-1 in its financial statements have been discovered.
ACRA provided no additional services to TGC-1. No conflicts of interest were discovered in the course of credit rating assignment.
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