Empresa Generadora de Electricidad Haina S. A. Rating Lowered To #B# From #B+# And Withdrawn At Issuer#s Request

Stocks and Financial Services Press Releases Tuesday June 19, 2018 18:14
BUENOS AIRES--19 Jun--S&P Global Ratings

BUENOS AIRES (S&P Global Ratings) June 18, 2018--S&P Global Ratings said today that it has lowered its issuer credit rating on Empresa Generadora de Electricidad Haina S.A. (Haina) to 'B' from 'B+' and revised its outlook to stable from negative. We subsequently withdrew the rating at the issuer's request.

The downgrade reflects Haina's key credit metrics that are weaker than we expected a year ago. Although the company was awarded new medium-term PPAs between late 2017 and beginning of 2018, reaching to a total contracted capacity of 35% (5% higher than last year over the last installed capacity), we currently believe the improvement was negligible because we still believe the key credit metrics will continue to weaken. This is mainly because of lower energy spot prices, which we expect to be at $100 per megawatt hour (MWh) in 2018 and $80 in 2019, in comparison with $115 and $105, respectively, projected last year. In addition, the entrance of the 674 MW power plant, Punta Catalina, in 2019 will impact Haina's position in the dispatch order, increasing presence in the peak load from the base load and increasing volatility to its cash flow generation.

In the next two years, we expect Haina's EBITDA to be around $85 million, which the company will mainly use for the construction of two 50 MW wind farms that might start operations between 2019 and 2020, and the expansion of the Barahona power plant, which will provide an additional capacity of 52 MW starting in October 2018. Therefore, we expect an average debt to EBITDA in excess of 4x and FFO to debt at about 15%.

Haina continues to be one of the largest power generation companies in the DR, operating eight thermal plants with aggregate 690 MW in capacity, which accounted for approximately 20% of the country's installed capacity and total generation of 2017. Despite Haina's relatively large size, the rating incorporates the challenges of operating in the DR's electric power industry, which in our view, has a weak regulatory framework. The latter includes an inefficient and highly subsidized distribution sector with uncertain long-term financial sustainability compared to regional peers. The rating also incorporated our opinion of a low likelihood of timely and sufficient extraordinary support from the government, which is the owner of 49% of Haina's shares, in the event the latter experiences a financial distress. We believe that the government already provides ongoing support to the sector through the subsidies and wouldn't extend additional support to any single entity.

The stable outlook on Haina reflected our expectation that it will continue to post stable EBITDA margins of around 25% despite its partial exposure in the spot market, because we believe it will continue to perform as a base-load asset at least in the next 12 months. As a result, we expect Haina will reach debt to EBITDA in a range of 4x-5x and FFO to debt around 15% for the next 12 months.

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