Apr 2020 Financial News

Two Trinidad And Tobago Infrastructure Entities Downgraded Following The Same Action On The Sovereign

Apr 03, 2020

Rating Action Overview

• On March 26, 2020, we lowered our long-term sovereign credit rating on the Republic of Trinidad and Tobago (T&T) to 'BBB-' from 'BBB'. The outlook is stable.
• As a result, we're taking the same rating action on two government-related infrastructure entities, The National Gas Co. of Trinidad & Tobago Ltd. (NGC) and Trinidad Generation Unlimited (TGU).
• The outlook on these companies is stable, mirroring that on the sovereign.

Rating Action Rationale

On March 26, 2020, S&P Global Ratings lowered its local and foreign currency ratings on Trinidad and Tobago to 'BBB-' from 'BBB', reflecting our expectations that lower oil and gas prices over the next several years will weaken the government revenues and lead to larger increases in net general government debt. The outlook on the sovereign is now stable.

As a result, we're lowering our ratings on government-owned NGC to 'BBB-' from 'BBB' and TGU to 'BB+' from 'BBB-'. The ratings on both companies 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, given the very important role that they play in the country's energy matrix. In addition, ratings on NGC and TGU incorporate their stand-alone credit profiles (SACPs) of 'bbb-' and 'bb-', respectively.

Outlook

The stable outlook on NGC and TGU mirrors that on the sovereign and our expectations that the very high likelihood of extraordinary support from the government would remain unchanged in the next 12-24 months. The outlook on NGC also incorporates our understanding that the company's margins will remain above 10% even amid the currently low natural-gas prices. The outlook on TGU also reflects our expectation that it will maintain its operating and financial performance with a solid EBITDA generation, thanks to its power purchase agreement contracts that result in stable and predictable cash flows, with adjusted net debt to EBITDA of 5x-6x during our two-year outlook horizon.

Downside scenario

In the next 12 months, we would downgrade NGC and TGU if there's a similar rating action on the sovereign. In addition, we could downgrade NGC or TGU in the next 12 months if we perceive a lower level of extraordinary support from
the government.

Upside scenario

Even though unlikely, we could upgrade both companies following an upgrade of the sovereign.



Source:
S&P Global Ratings
Friday 3rd April, 2020