Fitch Affirms EGE Haina's IDRs at 'B-'; Outlook Stable 01 May 2008 11:59 AM (EDT) Fitch Ratings-Chicago/Caracas-01 May 2008: Fitch has affirmed Empresa Generadora de Electricidad Haina, S.A. (EGE Haina) 'B-' international foreign and local currency Issuer Default Ratings (IDRs). The rating action applies to US$175 million of notes due 2017 issued by EGE Haina. The Recovery Rating has also been affirmed at 'RR4'. The Rating Outlook is Stable.
EGE Haina's ratings incorporate the risks of operating electric generation assets in the Dominican Republic (DR), where distribution companies have historically reported poor operating performance, characterized by very high losses and low collections. The risks associated with operating an electric generation system in the DR stem from the sector's systemic problems. Dominican Republic ranks fourth as the country with the highest electricity losses worldwide, after Congo, its neighbor Haiti and Moldavia. The ratings also consider the electricity sector's dependence on government subsidies as the current government has subsidized distribution companies' losses over the past three years. Over the next few years, Fitch expects the government to continue to support the sector via subsidies and the sector to slowly recover. The recent government initiatives to renegotiate power purchase agreements might increase cash flow generation uncertainty for generation companies. EGE Haina benefits from its diversified portfolio of assets using different fuel sources to generate electricity, its strong market position and its operating efficiency. EGE Haina's generation assets are composed of fuel oil, diesel, and coal power generation plants scattered throughout the country. This gives EGE Haina different positions on the dispatch merit list (starting from the second thermoelectric plant to be dispatched in the system after the coal generation units and ending with peak units). In addition, EGE Haina is the largest generation company in the country, with an installed capacity of 667MW (megawatts) and average generation of 1,758GWhs (gigawatt hour) during 2006. EGE Haina's operating efficiency compares well with other generation companies in the country. Going forward, the company is expected to continue reinvesting internally generated cash flow to maintain the company's competitiveness and be able to renew contracts once they expire in 2016. Recently, the company signed a memorandum of understanding with Korea Electric Power Corporation (KEPCO) (rated with an IDR of 'A' by Fitch) to study the possibility of building an approximately 240MW of installed capacity coal-fired generation plant in DR. The project would have an estimated cost of USD500 million and the parties will have a 50% participation each. This should have a favorable impact on EGE Haina's generation portfolio. The company has also stated its intention to convert its 100MW of installed capacity gas-fired single-cycle unit to a more efficient combined cycle unit at an investment cost of approximately USD50 million. EGE Haina has an average heat rate of 9,526 British thermal units (Btu)/kilowatt hour (KWh), and its most efficient generation unit has a heat rate of 7,800 Btu/KWh, burning heavy fuel oil also known as fuel oil No. 6. EGE Haina's credit metrics are considered strong for the rating category. Its financial profile is characterized by low leverage and adequate interest coverage ratios. As of December 2007, EGE Haina's leverage level, as measured by total debt-to-EBITDA, was 2.5 times (x). The company reported an EBITDA margin of 22% and EBITDA of approximately USD75.4 million during 2007. This compares favorably with the approximately USD17 million of annual interest expense. EGE Haina is the largest thermoelectric generator in the Dominican Republic as measured by installed capacity and electricity generation. EGE Haina has a total installed thermoelectric capacity of 667MW and generated a total of 1,758 GWh during 2006. EGE Haina is 50% owned by Haina Investment Company, Ltd. (HIC) and 49.97% by the government of the DR, with the balance owned by former employees of Corporacion Dominicana de Electricidad.
Contact: Lucas Aristizabal +1-312-368-3260, Chicago; or Hilario Ramirez +58 212 286-3356, Caracas. Media Relations: Christopher Kimble, New York, Tel: +1 212-908-0226. Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 'www.fitchratings.com'. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.