Fitch assigns EVN first-time ’BB’ rating; outlook stable
Fitch assigns EVN first-time ’BB’ rating; outlook stable
Fitch Ratings on Wednesday assigned Electricity of Vietnam (EVN) a long-term foreign-currency issuer default rating (IDR) of ’BB’ with a stable outlook.
The agency also assigned EVN a senior unsecured rating of ’BB’.
EVN is the first Government-linked non-financial corporate rated by Fitch in Viet Nam.
EVN’s ratings reflect its standalone credit profile, which is at the same level as that of the Viet Nam’s sovereign (BB/Stable). Under Fitch’s government-related entities rating criteria, EVN’s ratings will be brought on par to the sovereign’s in case of any weakening in its standalone credit profile, provided the linkages remain intact.
EVN’s standalone credit profile benefits from its position as the owner and operator of Viet Nam’s electricity transmission and distribution network, having nearly 61 per cent share of the country’s power generation capacity.
According to Fitch, an upgrade of EVN’s standalone credit profile is dependent upon the consistent application of the electricity regulatory reforms, including timely changes to tariffs that reflect cost
changes, while the funds for operations (FFO) adjusted net leverage is sustained below 5.0x.
“We expect the company to generate more than VND80 trillion (US$3.5 billion) in operational cash flow each year through 2020. However, it is likely to face large negative free cash flow owing to its high capex plans and will require external funding to manage its capex targets, which we believe it can secure due to its close links to the sovereign,” Fitch said.
Fitch expects the electricity demand in Viet Nam to continue to increase at an average rate of 9 per cent per annum, driven by rising industrialisation, urbanisation and affluence.
According to Fitch, as hydro-power accounts for some 43 per cent of Viet Nam’s generation capacity, years with productive hydro-power generation lift EVN’s profit margin. However, at times of lower rainfall, the company has to rely excessively on expensive coal.
EVN owns and operates some 61 per cent of Viet Nam’s total installed generation capacity, including large strategic hydro-power assets, which the Government uses to generate electricity, control floods and for irrigation.
EVN also operates the national power-dispatch system, selling electricity to more than 25 million customers across the country. The group has steadily augmented its generation capacity, and cut transmission and distribution losses over the previous few years.
