Standard & Poor's Maalot Ltd. has reiterated its AA- rating with a "Negative" outlook for Israel Electric Corporation (IEC) (TASE: ELEC.B22) bonds, and put the utility on its watch list. Maalot says, "IEC faces another liquidity crisis because an unexpected rise in fuel prices as a result of the shortage in natural gas deliveries from Egypt and the dwindling Israeli reservoirs, which forces the company to buy more expensive fuel."
Maalot adds, "The Israeli government has increased its guarantees by NIS 1 billion and approved a NIS 3 billion offering without guarantees, as it believes that these actions together will cover IEC's financing needs through at least February 2013. We believe that the government continues to fully back IEC with regard to its higher fuel costs, but that there is a risk regarding implementation of the liquidity support plan."
Maalot concludes, "Putting IEC on the Credit Watch List reflects the possibility that IEC's rating will be cut several notches, subject to IEC implementation in full and on time of its efforts to strengthen its liquidity."
Maalot adds that putting IEC on the Credit Watch List is based on its assessment of the weakness of IEC's independent liquidity, which is again under pressure due to an unexpected rise in its fuel cost forecast at the end of 2012. For more than a year, IEC's liquidity has been under pressure from the fuel crisis caused by the halt in Egyptian natural gas deliveries and the faster-than-expected depletion of the Yam Tethys reservoir. The termination forced IEC to buy more expensive fuels for its power stations, burdening the company's liquidity situation until the costs are covered by rate hikes. We expect this situation to continue until the Tamar reservoir is hooked up to the coast, which we believe will happen in early June 2013.
Maalot says that IEC and the government have agreed on the several measures to strengthen IEC's liquidity in the short and medium term. These include the immediate issue of NIS 1 billion in government backed bonds and a NIS 3 billion issue of non-backed bonds in early 2013, thickening IEC liquidity cushion to NIS 2 billion by June 2013, and the government's agreement in principle to provide an additional NIS 2 billion in guarantees for a debt offering in 2013. However, Maalot warns, "There is a risk about the implementation of this liquidity plan in the short and medium term."
Published by Globes [online], Israel business news - www.globes-online.com - on November 14, 2012
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