Fitch Ratings has revised the Outlook on JSC Georgian Oil and Gas Corporation’s (GOGC) Long-Term Foreign-Currency Issuer Default Rating (IDR) to Positive from Stable and affirmed the rating at ‘BB-‘, said a message from Fitch Ratings.
GOGC achieved a score of 25 points under Fitch’s government-related entity (GRE) rating criteria.
“We assess GOGC’s standalone credit profile (SCP) at ‘BB-‘. If the sovereign rating of Georgia is upgraded and GOGC’s SCP is one notch below the sovereign, a one-notch uplift to the same rating as the government can be considered. This underpins the revision of GOGC’s Outlook to Positive from Stable,” said Fitch.
Strong ties With Ultimate Parent: GOGC is 100 percent owned by the Partnership Fund (BB-/Stable), a fully government-owned investment vehicle. The company’s operations and investment plans are overseen by the Georgian government. GOGC has received financial support from the government in the past in the form of contributions in kind and the earlier repayment of loans provided to the immediate parent. We assess the status, ownership, control factor and the record of, and expectations for support as strong.
GOGC is the primary party in Georgia to gas supply and transit agreements, and is a key government vehicle for ensuring the reliability of gas supplies through cooperation with local distributors and suppliers. We believe that GOGC’s default could have serious consequences for the continued supply of gas in Georgia and assess the socio-political implications of the company’s default as strong.
“We believe that GOGC’s default would have a moderate impact on the availability and cost of funding for the government and other state companies and assess the financial implications of default as moderate,” said the message.
First Power Plant Fully Operational: The construction of the first gas-fired power plant in Gardabani was completed in September 2015. The plant generated 30 percent of GOGC’s total revenues in 2017, according to preliminary 2017 figures. It operates as a guaranteed electricity provider receiving a capacity fee, while electricity sales in its domestic market will be provided at cost. The government guarantees a 12.5 percent internal rate of return (IRR) over the asset’s life, with sales of electricity for export providing possible upside to our forecasts.
Improved Results in 2017: Revenues increased by 6 percent yoy to GEL672 million in 2017 according to preliminary financials. Gross profit before unallocated costs increased by 14 percent yoy to GEL277 million on the back of improved results from the gas supply, and electricity generation and supply segments. Reported net debt to EBITDA decreased to 0.9x at end-2017 from 2.2x a year ago. GOGC’s cash flow from operations (CFO) increased to GEL232 million in 2017, up from GEL159 million, as GOGC managed to reduce the amount of trade receivables by GEL36 million.
New Investments: GOGC plans to build an underground gas storage facility in Georgia and a second power plant in Gardabani. While details on the required spending are yet to be determined, based on the preliminary estimates we expect that GOGC’s net debt to EBITDA will remain below 3.0x until 2020.
