Apr 2017 Financial News

S&P downgrades NGC, TGU

Apr 25, 2017

Days after Friday’s downgrade of T&T’s credit rating to BBB + from A- by Standard and Poors (S&P), the credit rating agency has taken similar action on the National Gas Company (NGC) and Trinidad Generation Unlimited (TGU).

S&P Global Ratings yesterday lowered its local and foreign currency ratings on NGC to ‘BBB’ from ‘BBB+’ and on TGU to ‘BBB-’ from ‘BBB’.

S&P said the outlook on these ratings is stable.

The rating actions follow S&P’s downgrade of the sovereign, with a stable outlook.

In downgrading T&T, S & P explained that the rating action reflects further weakening of this country’s debt burden, including a higher-than-expected rise in net general government debt to GDP and the interest burden over 2017- to 2020.

It said the country’s recession stems from “low oil and gas prices in global markets, disruptions in domestic production, and ongoing US dollar shortages in domestic banking system.”

Economic contraction and lower fiscal revenues from the energy sector, according to S & P, resulted in a general government deficit of 5 per cent of GDP in fiscal 2015 and 2016.”

The stable outlook, it said, reflected the expectation that the economy will recover “modestly in 2017-2020 amid higher natural gas prices and increased gas production.”

S&P said it expected a continuation of economic policies in the next two years “including the government’s commitment to fiscal consolidation,” and the “rise in the debt burden to stabilise.”

As a result of T&T’s downgrade, S&P said it had “lowered the foreign and local currency ratings on NGC and TGU, which the government owns.” The ratings on both companies,” it said “continue to reflect our opinion that there’s a very high likelihood that T&T would provide timely and sufficient extraordinary support in the event of financial distress. In addition, ratings on NGC and TGU reflect their stand-alone credit profiles (SACPs) of ‘BBB-’ and ‘BB-’, respectively.”

S&P said the outlook on NGC also incorporates its understanding that “the company’s margins will remain above ten per cent even amid the current low natural-gas prices.”

It said the outlook on TGU “also reflects our expectation that it will maintain its operating and financial performance with a solid Earnings before interest, tax, depreciation and amortization (EBITDA) generation, thanks to its power purchase agreement contracts that result in stable and predictable cash flows.”

S&P said in the next 18 months it could upgrade both companies following an upgrade of the country.

In addition, it said a one-notch upgrade of NGC’s stand-alone credit profile (SACP), could result in higher ratings, but cautioned that this is unlikely in the short term.

On the downside S&P said in the next 18 months, NGC could be downgraded “if we lower the SACP on the company by two notches. That might happen if NGC’s EBITDA margins decrease below ten per cent, which would prompt us to revise our assessment of the business risk profile to a weaker category.”

S&P also warned that TGU could be downgraded in the next 18 months “if we perceive a lower level of extraordinary support from the government.”

Source:
Trinidad Guardian
Tuesday April 25, 2017

http://www.guardian.co.tt/business/2017-04-24/sp-downgrades-ngc-tgu