Corporates Electric-Corporate / Dominican Republic
Empresa Generadora de Electricidad Haina, S.A. (Haina) Full Rating Report Key Rating Drivers
Ratings
High Risk Sector: The Dominican Republic power sector is characterized by low collections
Foreign Currency Long-Term FC IDR Long-Term LC IDR Senior Unsecured
B B B
from end users and high electricity losses. Such conditions have undermined distribution companies’ (DISCOs) cash flow generation, leaving them dependent on government subsidies to honor their accounts payable to the Dominican generation companies. This links the credit quality of the distribution and generation companies in the country to that of the sovereign.
FC – Foreign currency. LC – Local currency. IDR – Issuer default rating.
Rating Outlook Long-Term LC/FC IDR
Positive
Financial Data Haina S.A. (USD Mil.) Revenue
LTM 3/31/12 12/31/11 648 618
EBITDA EBITDA Margin (%)
119 18.4
112 18.2
FFO CFFO FCF FFO Interest Coverage (x) Total Debt Total Debt/ EBITDA (x) EBITDA/Debt Service Coverage (x)
99 82 (24)
83 41 (10)
5.5 301
5.4 281
2.5
2.5
1.7
1.7
Transition Risk Diminishes: The incumbent party’s electoral victory in the presidential elections held during May 2012 partially diminishes the political uncertainty that had prevailed during the first half of the year. For Empresa Generadora de Electricidad Haina, S.A. (Haina), the results lowered the risk of noncontinuous policies aimed at strengthening the financial viability of the Dominican electricity sector, as agreed to under the last IMF Standby agreement, which expired in February 2012. Key political measures needed to achieve a financially viable sector in the medium term include a gradual adjustment to tariffs, increases in the DISCOs’ cash recovery index (CRI) to 70% from the historical lows of 50%, and the reduction of days receivables from generating companies to a 60-day average.
Competitive Generation Assets: Haina’s ratings are supported by its diversified portfolio of generation assets, including wind generation, the use of various sources of fuel in its plants, and its strong market position and operational efficiency. These plants use fuel oil, diesel, and coal. This diversification provides the company with different positions on the dispatch merit list. Haina’s operational efficiency compares favorably with other generating companies in the country, registering an average heat rate of 9.526 British thermal units (Btu) per kilowatt-hour (kWh). Its most efficient unit registers a 7.800 Btu/kWh heat rate burning heavy fuel oil, also known as fuel oil No. 6. Strong Credit Metrics: Haina’s credit metrics are strong relative to other ‘B’ rated companies. For the LTM ended March 31, 2012, the company reported an EBITDA of USD119 million (USD112 million in fiscal 2011) and had an 18.4% EBITDA margin. Respectively, leverage and debt service coverage stood at 2.5x and 1.7x in relation to EBITDA as of March 31, 2012. Volatile Cash Flow Generation and Collection: For the LTM ended March 31, 2012, the company generated USD82 million of CFFO, an increase from USD41 million in 2011. Like other generators, the company struggles to collect receivables from distribution companies. At the end of first-quarter 2012, days receivable outstanding totaled 120 days, which is equivalent to four invoice periods. The collection rate was 54% during this period. With USD149 million of cash on hand, liquidity is high at 3x short-term debt.
Analysts Julio Ugueto +58 212 286-3356 julio.ugueto@fitchratings.com Lucas Aristizabal +1 312 368-3260 lucas.aristizabal@fitchratings.com
www.fitchratings.com
What Could Trigger a Rating Action Key Rating Drivers: Lower dependence of the sector on government subsidies could lead to a rating upgrade. The ratings would also be positively affected by a positive rating action on the sovereign.
September 11, 2012