American credit rating agency Fitch Ratings has delivered a favorable review of power utility PPC that enhances the company’s credit image and takes it a step closer to capital markets.
The credit agency has not only added PPC to its catalogue of companies reviewed, but also given the utility a BB- rating, noting that a firm outlook lies ahead. This status is twice as good as a B rating offered by S&P in November.
It enables PPC to begin examining the prospect of borrowing through a bond issue for the first time in six years.
The Fitch Ratings grading has been embraced at PPC’s Athens headquarters, as it not only seals a perfectly successful year but also puts in place a solid foundation for an even better year in 2021.
Interpretations of the outcome by some analysts remain cautiously optimistic. These analysts believe consolidation of PPC’s improved standing must wait for the release of its financial results for the year. Favorable news on the forthcoming 49 percent privatization of subsidiary DEDDIE/HEDNO, the distribution network operator, will also further enhance PPC’s image, they pointed out.
PPC’s integrated business structure, dominant market position, long-term sustainability as a result of strategic repositioning, as well as favorable energy sector reforms from 2019 to the present were key factors in the favorable Fitch Ratings grading.
Power utility PPC intends to seriously consider a bond issue towards the end of the year, once it expects to have further improved the company’s profile and credit rating, banking sector sources believe.
Although very low interest rates at present and the country’s better image have improved foreign market bond-issue prospects for Greek enterprises, PPC will prefer to hold on a little longer, the sources added.
The power utility can afford to wait as conditions are continuing to develop in favor of PPC, banking officials told energypress. Last November, S&P upgraded the power utility’s credit rating to B- from CCC+. PPC’s borrowing cost is currently approximately 5 percent.
Moreover, major debt payments are not due until 2021 and the utility is planning to launch 60 and 90-day securitization packages for unpaid receivables, whose incoming revenue should suffice for the time being.
PPC also plans to stage an Investor Day event in London late this month during which the corporation’s administration will present business plan details to foreign analysts, the objective being to further improve the utility’s image and generate new share purchases. Also, the company is scheduled to post its financial results for 2019 in April.
PPC’s capitalization has steadied at a level of approximately one billion euros for a share value of 4.14 euros yesterday. This stability is a positive development, the banking officials stressed.
Hellenic Petroleum ELPE has organized a series of meetings with institutional investors over the next few days to pitch an imminent five-year bond issue aiming to attract a capital amount of between 300 and 400 million euros at an interest rate, according to some sources, of just under 3 percent.
The ELPE bond issue could take place this week, sources have informed.
The listed petroleum group has asked participating banks to organize a series of presentations, the first in London today. Zurich and Paris follow tomorrow, while an Athens session is planned for Thursday.
ELPE officials are optimistic on the prospects of the bond issue, whose objectives include premature settlement of a bond with a 4.875 percent interest rate, expiring October 2021. This bond is worth 449.53 million euros.
The new ELPE bond issue comes amid a favorable time for the Greek economy and following a successful bond issue by Hellenic Telecommunications OTE.
A privatization plan to offer part of the Greek State’s 35.48 percent stake of ELPE has yet to be finalized, according to energy minister Costis Hatzidakis. Sources insist the privatization will take place through the Athens bourse.
A Hellenic Petroleum ELPE plan for an imminent bond issue that will seek to raise a sum of at least 300 million euros at an interest rate of less than 2 percent in order to refinance an existing loan could be delayed by increased tension in the Middle East over the past few days as a result of drone attack on Saudi Arabia’s oil installations.
A firm US reaction against Iran would further escalate this tension in the wider area and could negatively impact ELPE’s planned bond issue as some investors would certainly hesitate to invest.
The petroleum group’s net debt is 1.4 billion euros, down by approximately 500 million euros compared to a year earlier, according to ELPE’s first half results, announced August 29.
Along with its first-half results, ELPE announced a bond issue plan for within 2019, the objective being to further decrease its financial costs.
Power utility PPC will delay a planned bond issue until early next year, most probably within January, once a series of rescue-plan measures have been implemented, energypress sources have informed.
Though current market conditions are ideal, as highlighted by the 10-year Greek Govt bond yield of between 1.5 and 1.7 percent, the power utility’s board would rather wait for the implementation of all measures included in its rescue package before proceeding with a bond issue in pursuit of low-cost capital from international markets.
A series of measures intended to bolster PPC will have been taken by early next year. PPC’s first-half results, expected along with a report by the power utility’s certified auditor Ernst & Young on September 24, will include all measures deemed necessary for the corporation’s restructuring.
The energy ministry is soon expected to take legislative action enabling public service compensation returns of approximately 200 million euros to PPC for 2011 as well as the termination of NOME auctions in October or November, a favorable prospect for PPC, which has been obligated to offer below-cost wholesale electricity to rivals through the auctions over the past few years.
Also, between October and December, PPC plans to securitize unpaid receivables concerning electricity bills overdue by at least 60 days to draw capital from foreign funds.
Furthermore, consulting firm McKinsey is expected to have delivered an updated business plan for PPC by the end of December.
All these initiatives, along with electricity tariff hikes, will be included in PPC’s bond issue prospectus to make the utility’s growth prospects as convincing as possible.
The main power utility PPC, facing relentless pressure ahead of an international bond payment obligation worth 350 million euros in May, is using every available opportunity to reiterate its need for electricity tariff hikes.
Commenting yesterday on PPC’s refinancing needs for the current year, PPC officials indicated the utility would need to resort to existing cash reserves to service the maturing international bond if it fails to access capital markets by May. Pundits have interpreted this as an indirect reference to the need for tariff hikes.
A month earlier, PPC’s chief executive Manolis Panagiotakis linked the utility’s need for tariff increases with an effort to improve its finances before heading to capital markets.
Energy minister Giorgos Stathakis, mindful of upcoming elections, has strongly rejected any tariff hike plans by the state-controlled power utility, but appears more lenient towards a reduction of a 15 percent discount offered to customers paying their electricity bills on time.
If PPC ends up not increasing its electricity tariffs, as appears most probable, it will need to postpone a planned bond issue. Despite this threat, an international road show intended for this issue’s promotion may be launched next month, PPC officials informed yesterday.
PPC has faced sharply increased operating costs over the past year or so. Wholesale electricity prices have reached levels of more than 80 euros per MWh, up from 53 euros last year. This includes the cost of CO2 emission rights purchased by PPC for its lignite-fired power stations, which have skyrocketed to 25 euros per ton from just 5 euros per ton in 2017.
The main power utility PPC is planning a return to capital markets with a bond issue expected to range between 300 and 400 million euros in the first quarter of 2019, signalling a return to normality.
The power utility has already hired a financial consultant, now establishing contacts with prospective international investors.
Confirming that the issue’s preparations have reached a far more advanced stage than has been believed until now, PPC’s chief executive Manolis Panagiotakis, speaking yesterday at the Hellenic-American Chamber of Commerce, noted progress in talks with investors.
However, Panagiotakis also pointed out certain investment funds appear unwilling to participate in the forthcoming bond issue due to environmental reasons, not financial. PPC’s portfolio is heavily reliant on lignite-related assets.
The power utility’s first-quarter bond issue will be planned to precede the maturity date of a May, 2014 bond issue and could be staged in London. According to current estimates, the issue’s interest rate is expected to be set below 5 percent, possibly less than 4.5 percent.
The issue’s precise date will depend on an anticipated credit rating upgrade expected at PPC. Standard and Poors has noted a Greece upgrade would prompt a matching upgrade for state-controlled PPC.