Training on сorporate credit analysis, March 19–20

ACRA affirms AA(RU) to TGC-1, outlook Stable

The credit rating of TGC-1 (hereinafter, the Company) is based on high profitability, low leverage and strong liquidity of the Company. The rating is restricted by the Company's medium business scale, the quality of fixed assets, and regulatory risks. The rating is supported by a high likelihood of support from Gazprom, the key shareholder of the Company.

TGC-1 is the second largest electric power generating company 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. The Company occupies 34% of the electric power market and 73% of the heat power market in the regions of presence. The main shareholders of the Company are Gazprom energoholding LLC (51.79%) and Fortum Power and Heat Oy (29.45%).

Key rating assessment factors

New TPPs and HPPs drive high profitability and low price risks. The Company's profitability is higher than the average level demonstrated by Russian generating companies. Over 90% of the Company's profit comes from the two segments with the revenue share of 29% each (according to ACRA estimates): 10-year contracts for new TPPs (payments under Power Supply Contracts or DPM) and the sales of electricity for HPPs on the spot market. Nearly 41% of the Company's revenues is generated by heat energy sales segment, which is characterized by low profitability, high regulatory risks, and overdue payments need to be covered by reserves. In 2019–2020, the Company's FFO margin before interest and taxes will remain high (25-27%) but starting from 2021 it will fall to 20–23% due to the expiration of the 10-year contracts for new TPPs.

Substantial decrease in leverage. The completion of investment projects and higher profitability has led to a decrease in leverage from RUB 25 to 19 billion over 2018. The Company's leverage has been declining since 2012, when it reached 2.7x. In 2018, the ratio of debt to FFO before net interest was 1.0x. The moderate decrease in the leverage down to 0.7-0.9x is expected in 2019-2021 since the Company's investment program will be largely covered with its own funds. The Company's debt portfolio is dominated by bank loans (69% of the portfolio) denominated in rubles (98%). In 2018, the weighted average interest rate on the loan portfolio (7.5%) was lower than the average figure for the electric power sector. The liquidity of the Company is supported by the low leverage and a significant amount of undrawn credit lines (RUB 30.6 billion at the end of 2018).

New investment cycle to deteriorate cash flow. The Сompany plans to increase investment by 40% in 2019-2021 compared to 2016-2018. The free cash flow of the Company has been positive since 2013 (except 2015) and, according to the base case forecast of ACRA, it will remain positive in 2018–2020. The cash flow may decline after 2020 following the expected drop in the payments under the DPMs, but investments are likely to increase in connection with the launch of a new program to support the upgrade of CHPPs planned by the Russian Government.

Support from Gazprom. The Company's share in the revenue of PJSC Gazprom is 2%. The Company's significance within the group is conditioned by the importance of the power sector for the business of PJSC Gazprom and the positions of the Company that provides electricity to St. Petersburg, the second largest economic center of Russia. In the period from 2013 to 2017, the group lent RUB 31 billion to the Company to finance its investment program and refinance loans. Gas supplies from PJSC Gazprom account for about 36% of the Company's expenses.

Key assumptions

  • In 2019, the indexation rate: heat tariffs at +15%, in 2020-2021 at +4%, gas tariffs at+3% (on average), the electric power spot prices in European Russia at +3.9%; 
  • In 2019–2021, the Company to successfully implement its capital investment program with average annual investments of RUB 14 billion;
  • Dividend payments in line with historical trends at 26% of net profit.

Potential outlook or rating change factors

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:

  • The weighted FFO before net interest and taxes exceeding RUB 30 billion;
  • The weighted FCF margin exceeding 5%. 

A negative rating action may be prompted by:

  • The total debt exceeding 1.0х of the FFO before net interest and deteriorating debt profile or the interest payments coverage going below 10.0х;
  • The FFO margin before net interest and taxes going below 15% as a result of regulatory changes in the electric or heat power market or other factors;
  • The FFO margin going below 2% as a result of growing capital expenses, dividend payments, or other factors;
  • Lower propensity of the key shareholder to support the Company and/or higher dividend payments to the key shareholder.

Rating components

SCA: aa-.

Support: Group — one notch up to the SCA.

Issue ratings

No outstanding issues have been rated.

Regulatory disclosure

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 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 published for the first time on January 22, 2018. The credit rating and its outlook are expected to be revised within one year following the rating action date (January 11, 2019).

The assigned credit rating is based on data provided by TGC-1, information from publicly available sources, as well as ACRA’s own databases. The rating analysis was performed using IFRS consolidated financial statements of TGC-1. 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.

Log in

Forgot password

Sign up

Reset password

Reset password

Termsofuse

Полное использование материалов сайта разрешается только с письменного согласия правообладателя, АКРА (АО). Частичное использование материалов сайта (не более 30% текста статьи) разрешается только при условии указания гиперссылки на непосредственный адрес материала на сайте www.acra-ratings.ru . Гиперссылка должна быть размещена в подзаголовке или в первом абзаце материала. Размер шрифта гиперссылки не должен быть меньше шрифта текста используемого материала.