TBILISI
(Read the full report on fitchratings.com)
Fitch Ratings has assigned Telasi JSC, an electricity distribution company in Georgia, first-time long-term Issuer Default Rating (IDR) of ‘B+(EXP)’ with Stable Outlook.
The agency said that the assignment of final rating is contingent on the company’s successful local bond issue and refinancing as proposed by management in their business plan.
“The rating is constrained by the execution risks related to planned supply unbundling and the new market model in Georgia, including counterparty risk associated with a new electricity supplier,” Fitch said in a statement.
“It also factors in higher volatility of profitability and smaller size than European peers’.”
The agency said that rating strengths were Telasi’s “natural monopoly position in electricity distribution in the capital Tbilisi, with regulated long-term asset-based tariffs set by the independent regulator in Georgia, expected
improvement in cash flow visibility after the planned unbundling of supply and low foreign exchange (FX) risks.
“We expect post-refinancing liquidity and credit metrics to be adequate for the rating, but for headroom
to reduce following the expiry of the loss-compensation component in 2021-2023 tariffs,” Fitch said.
Telasi has a country-wide market share of around 22 percent. Based on distribution volumes of around 2.6 TWh annually and assets value below $100 million, Telasi is one of the smallest networks among rated European peers.
The agency said that after the unbundling of supply activities from distribution business expected from the second half of 2021, the variable component of electricity prices would be eliminated from Telasi’s tariffs and transferred to a newly created electricity supplier in Tbilisi, Telmico. Telasi will retain metering of clients and provide metering data to Telmico which will purchase electricity at partially liberalised market prices and collect payments from end-customers, paying the distribution tariff to Telasi.
“We view future insulation of Telasi’s cash flows from volatility in electricity prices as credit-positive,” it said.
Fitch projected Telasi’s funds from operations net leverage (excluding connection fees) to be temporarily strong for the rating at an average of 1.3x over 2021-2023 due to compensation for previous years’ losses being included in tariffs. Starting from 2024, cash flows will normalise, resulting in Telasi’s re-leveraging to above 3.5x, which is commensurate with the rating.
Key assumptions:
– Gross Domestic Product growth in Georgia of 4.3 percent in 2021 and 4-5.8 percent annually in 2022-2025 Inflation of 3.5 percent in 2021 and 2.8 percent in 2022-2025
– Electricity distribution volumes 2 percent below management forecasts on average over 2021-2025
– Electricity distribution tariffs as approved by the regulator for 2021-2025
– Spin-off of electricity supply from the second half of 2021
– Operating expenses to increase slightly below inflation in 2021-2025
– Capex averaging 46 million lari ($15 million) over 2021-2025, slightly below management expectations.