Global Arab Network | Dominance Power - Fitch Affirms Saudi Electricity Company with Stable Outlook

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Dominance Power - Fitch Affirms Saudi Electricity Company with Stable Outlook

Global Arab Network - - George Haddad

Monday, 05 July 2010 23:57

Fitch Ratings has affirmed Saudi Electricity Company's (SEC) Long-term Issuer Default Rating (IDR) and senior unsecured rating at 'AA-'. The Outlook for the Long-term IDR is Stable. Fitch has also affirmed SEC's three Sukuk issues at 'AA-'.

The ratings are supported by SEC's role as the incumbent electric utility in the Kingdom of Saudi Arabia (KSA, rated 'AA-' /Outlook Stable), which directly owns 74% of SEC (and indirectly owns another 7% through Saudi Aramco). Its ratings remain aligned with the sovereign in accordance with Fitch's parent/subsidiary methodology, reflecting the continued strong legal, operational and strategic ties between SEC and the government.

Strong tangible support from the state is evidenced through the government providing a SAR14.9bn 25-year interest-free loan whose status will be reviewed upon maturity in 2024, a moratorium on government dividends being extended until 2019, the assumption by the government onto the books of the Ministry of Finance of SAR13.3bn of payables to Saudi Aramco and through SEC's costs being subsidised through the government establishing the price for fuel feedstock from Saudi Aramco. SEC is considered strategically important to the KSA for its role in implementing the kingdom's energy policy.

The ratings further reflect SEC's monopoly position in power distribution and transmission and its dominance in power generation in the kingdom. Its operating profile is supported by continued strong electricity demand growth, averaging at around 6% per annum (supported by a customer profile that comprises a sizeable portion of households and a relatively young population). Fitch, however, notes that cash flow pressure is expected to increase due to the roll-out of a large expansionary capital expenditure programme (expected to exceed SAR160bn over the next five years). This is expected to weaken leverage, measured as total adjusted net debt/EBITDAR, to close to 5x in FY13, from 1.8x at FYE09 and just above 1x at FYE08. Nevertheless, SEC's financial profile remains commensurate with a solid investment-grade rating, although lower than the current support-driven rating level.

SEC has a strong liquidity profile, with FYE09 cash and deposits increasing to SAR3.9bn, from SAR1.2bn at FYE08, and unused credit lines amply covering short-term debt of SAR828m. In FY10, SEC successfully issued a new long-term SAR7bn Sukuk (maturing 10 May 2030), and obtained a new SAR15bn interest-free 25-year government loan, further enhancing its debt maturity profile.

The capex programme is designed to enhance reserve margins and optimise the power grid. The transmission grid expansion also involves completing the interconnection between KSA's four regions, which should support system efficiency.

Negative rating factors include limited transparency in a pre-unbundling environment and large transactions with related entities.

Global Arab Network

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