Moody's Investors Service announced today that it was affirming the Baa3 senior secured rating of The Israel Electric Corporation (IEC) and the (P)Baa3 provisional rating of IEC's $5.0 billion global medium-term note (GMTN) program. Moody's says that the outlook on the ratings remains stable.
Moody's says the Baa3 rating affirmation factors in (1) the ongoing consolidation of IEC's financial position during 2014, following a good performance in 2013 when FFO/net debt recovered to 12.5%; and (2) management's commitment to cut costs and manage capital investment by reference to the development of its tariffs such as to generate positive free cash flow. These positive considerations are balanced by the uncertainty arising from the current impasse between government and unions over market reform, and the increasing competition from independent power producers (IPPs) in the generation segment. While acknowledging the steps taken in 2014 to improve liquidity management, Moody's nevertheless continues to view IEC's liquidity profile as structurally weak.
Moody's acknowledges that IEC has taken further steps to improve its liquidity position during 2014. The company has raised NIS1 billion through a private placement with Israeli institutional buyers to refinance maturing liabilities and to support management's target to maintain a liquidity buffer of not less than NIS3.0 billion, including a maximum of NIS800 million of fuel inventories. Reported cash as at 30 June 2014 was NIS4,527 million. It has also put in place approximately NIS1 billion new short term credit facilities.
""IEC's Baa3 ratings reflect (1) the critical role of IEC as supplier of substantially all electricity used within Israel; (2) the rating agency's assumption that there is very high probability of government support for the company, but also a very high default dependence, that is to say a very high tendency for the two entities to be jointly susceptible to adverse circumstances; (3) IEC's limited financial flexibility and its strengthened but still weak liquidity; (4) IEC's high leverage and significant ongoing refinancing needs; and (5) uncertainties around the timing and implications of the market reform in the electricity sector," Moody's says.
Published by Globes [online], Israel business news - www.globes-online.com - on October 13, 2014
© Copyright of Globes Publisher Itonut (1983) Ltd. 2014