The Greek State’s recent bond-market outing for an unprecedented, in the country’s history, borrowing cost of less than 1 percent paves the way for power utility PPC to follow suit.
This low yield and strong attraction of institutional investors, who ended up with over 95 percent of the Greek State’s bond issue, combined with a steady interest by foreign investors in PPC’s portfolio are believed to be pushing the power corporation towards a more aggressive financing policy for a return to bond markets following a six-year absence.
However, PPC has yet to decide on when to make its move. The corporation has not planned a bond issue for this month or next, sources have informed energypress. Even so, a sudden decision cannot be ruled out, they added.
PPC has been contemplating a bond-market outing since late December, when Fitch Ratings delivered a positive credit rating. The US firm included, for the first time, PPC on the list of enterprises it rates and offered a BB ranking, two times better than a preceding B ranking delivered by S&P in November.
At the time, despite the good news, company sources insisted PPC’s objective to head to capital markets in the first half of 2021 remained unchanged.
But a wave of favorable news, which, besides the BB rating from Fitch Ratings, includes PPC’s securitization packages for unpaid receivables; the achievement of profit figures for a fourth successive quarter; a new business plan; the launch of a privatization procedure for distribution network operator DEDDIE/HEDNO; and an upcoming partnership agreement with Germany’s RWE for RES investments in Greece; has generated momentum for PPC.
A bond issue would help finance many of the company’s project plans, primarily in the RES sector, as well as distribution network investments. It will also enable PPC to restructure older debt for lower-cost borrowing terms.
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.
Credit rating agency Standard & Poor’s has upgraded power utility PPC’s financial status, driven by the utility’s plan to decarbonize sooner than planned, as well as, by 2022, a projected EBITDA figure of between 900 million and one billion euros and an investment plan to reach a total of two billion euros.
S&P projects PPC’s swifter withdrawal of high-cost lignite facilities will result in a lignite-fired power station portfolio with a total capacity of just 700 MW in 2023, down from 3.7 GW in December, 2019. This development will decrease PPC’s electricity generation costs as a result of the utility’s greater emphasis on renewable energy sources and natural gas for production, the credit agency noted.
PPC, according to S&P, will invest two billion euros to increase its RES portfolio from 154 MW to 1.5 GW.
PPC’s retail electricity market share contraction, which reduced its customer base from 6.9 million in 2019 to 6.6 million in 2019, will be offset by bigger profit margins to be achieved through reduced discount rates for tariffs, S&P noted.
The credit agency projects PPC’s market share will drop sharply in 2022 to 60 percent, from 75.8 percent at present.
S&P has also taken into account the utility’s two securitization package collections for unpaid receivables, expect to bring in 500 million euros.
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.
The arrival of a strategic partner and privatization is the only realistic option available for struggling power utility PPC, as this would lessen the Greek State’s tight grip on the utility and enable decisions needed for the corporation’s restructuring and sustainability, chief executive Manolis Panagiotakis has suggested in a detailed rundown of company matters, regarded by some pundits as an overview of his tenure ahead of the upcoming snap elections.
PPC requires capital support worth 2.2 billion euros to reshape and achieve long-term sustainability, financial services company Standard & Poor’s has determined in an outlook backed by Panagiotakis.
During his overview, presented to company shareholders yesterday, the chief executive offered no hints as to who could provide this capital amount and under what conditions, but did specify that PPC’s hydropower units should not be sold.
Panagiotakis is well aware of the fact that ASEP (Supreme Council for Civil Personnel Selection) restrictions on state-run enterprises cannot be avoided at PPC as long as the Greek State holds a 51 percent stake, which is why a strategic partner for the power utility is seen as the only viable solution.
PPC’s first-quarter results, disappointing, were leaked recently and are expected to be officially announced today.
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.
Now that the board at main power utility PPC has approved the terms of a 200 million-euro loan offered by the country’s four main banks, the focus of attention has turned to how this development may influence the utility’s poor credit rating maintained by Standard and Poors.
Just last month, on February 9, the credit rating agency gave PPC a Creditwatch negative grade, which, simply put, means that the corporation is being monitored for fear of possible bankruptcy.
An official at Standard and Poors, contacted for an update, noted that February’s rating remains valid, adding that no revision worthy of any announcement has been planned.
Ratings issued by the agency remain valid for three months. If a new announcement is not delivered once this three-month period has expired, then the exisiting status is automatically renewed.
PPC’s Standard and Poors downgrade in February was linked to a number of factors. In the short-term, PPC’s delay in reaching a final agreement with Greece’s four main banks for the 200 million-euro loan, needed to finance a bond maturing in April, contributed to the negative ranking.
In the long-term, the utility’s debt-servicing ability is not considered sustainable, especially as a result of the pending and prolonged conclusion of the bailout’s second review, which is preventing the local banking system from supplying credit to PPC. The utility’s cash flow has been heavily affected by an alarming unpaid receivables figure.