Fitch Ratings has affirmed Enel Russia PJSC's Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at 'BB+'.
The Outlook is Stable.
The affirmation reflects our expectation that the company will be able to reduce leverage after it increases above the rating sensitivities in 2021-2023 due to capex on wind and modernisation projects for gas plants, a weakening of EBITDA following Reftinskaya coal plant sale in 2019 and phase-out of capacity sales under capacity supply agreements (CSA) in 2020. We expect this to be gradually offset by commissioning the newly constructed renewable capacity under renewables CSAs along with modernisation CSAs over 2021-2025, which would support predictability of cash flows in the medium term. The Stable Outlook reflects our expectation of deleveraging after the 2021 peak (around 4.0x), trending towards 2.5x by 2023.
The company is subject to execution risk, as its projects are at different stages, but this is mitigated by the Enel group's expertise. The company commissioned Azov wind farm (90MW) in
Key Rating Drivers
Credit Metrics Weakening Temporary: We expect funds from operations (FFO) net leverage to be above our negative rating sensitivity in 2021-2023 due to high capex, lower EBITDA and our expectations that all new wind capacities will be commissioned by end-2024 and modernisation projects be completed by end-2025. The commissioning of renewables capacities under CSAs would support EBITDA in absolute terms and improving predictability. Increasing EBITDA and reducing capex would support gradual deleveraging to below 2.5x from 2024, in our view, which is a key driver for the affirmation and Stable Outlook.
Our expectations are based on total capex of
EBITDA Weakness Temporary: We forecast Fitch-calculated EBITDA to decrease to about
Supportive Renewable CSAs Tariffs: Similar to thermal generation in
Modernisation Projects: In 2019, thermal power units of 330MW (rising to 370MW after further investments) were selected at modernisation CSA auctions, with expected commissioning over 2022-2025 and a base rate of return of 14%, adjusted according to Russian bond yields. The consistent application of the CSA framework, modernisation CSAs and auctions on the competitive capacity market over a six-year period adds to cash-flow predictability. We estimate that more than half of the company's EBITDA will derive from some form of contracted capacity in the medium term.
FCF to Remain Negative: We expect free cash flow (FCF) to remain negative over 2021-2023, reflecting high capex and dividend outflows before FCF turns neutral or slightly positive following capex moderation and improved operating cash flows. Negative FCF will add to funding requirements.
9M21 EBITDA Declined:
Derivation Summary
Following the disposal of Reftinskaya power station,
We forecast a deterioration of
Key Assumptions
Fitch's Key Assumptions Within Our Rating Case for the Issuer
Russian GDP of 2%-4.3% and inflation of 4.1%-6.2% in 2021-2025
Power price to grow above inflation in 2021 and in line with gas price over 2022-2025
Regulated electricity tariffs to increase in line with inflation annually up to 2025
Gas tariff indexation of 3%-5% a year over 2021-2025
Capex in line with management expectations for wind projects, CSA modernisation capex of
Zero dividend payment in 2021,
Azov wind farms (90MW) commissioning in 2021, Kola wind farm (201 MW) commissioning in 2022 and Rodnikovsky wind farm (71MW) commissioning in 2024
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Implementation of business transformation and completion of wind and modernisation projects leading to a recovery in EBITDA
Continuous record of a supportive regulatory framework, coupled with
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Failure to show a clear deleveraging path towards 2.5x by 2023.
Generous dividend distributions or an ambitious capex programme leading to a weakening of the financial profile, with FFO net leverage rising above 2.5x and FFO interest coverage falling below 5x on a sustained basis
Negative FCF on a sustained basis
Best/Worst Case Rating Scenario
International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
Liquidity and Debt Structure
Comfortable Liquidity, No FX Debt: At end-9M21, cash and equivalents stood at
Issuer Profile
PJSC Enel Russia is a power generating company and a subsidiary of
Summary of Financial Adjustments
Impairment loss in respect of construction in progress was excluded from EBITDA, allowance for expected credit losses of trade and other receivables was included in EBITDA
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
RATING ACTIONS
Entity / Debt
Rating
Prior
Enel Russia PJSC
LT IDR
BB+
Affirmed
BB+
ST IDR
B
Affirmed
B
LC LT IDR
BB+
Affirmed
BB+
LC ST IDR
B
Affirmed
B
senior unsecured
LT
BB+
Affirmed
BB+
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