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26.06.2008
Credit-Rating assigns Lugansk Energy Association LLC`s bond issue uaBBB (provisional)
Credit-Rating, a nationally recognized credit rating agency in Ukraine has today announced that it assigned a long-term credit rating of uaBBB (provisional) to registered coupon bonds (series A) issued by Lugansk-based Lugansk Energy Association LLC (`issuer` or `company`). The amount of the issue is UAH100m, with 3-year original maturity. The company`s principal activity is supply of electric energy at the regulated tariff in the city of Lugansk and Lugansk Oblast. In the course of analysis Credit-Rating considered issuer`s financial statements for 2003-2007 as well as its other inside information.
An obligor or a debt liability with uaBBB credit rating is characterized with the SUFFICIENT creditworthiness as compared to other Ukrainian obligors or debt liabilities. This level of creditworthiness is affected by adverse changes in commercial, financial and economic conditions.
Factors maintaining the credit rating
- The cash flows aimed at redemption of bonds and repayment of interest on them are separated from other issuer`s cash flows (since the adoption of relevant resolution made by the National Electricity Regulatory Commission of Ukraine (NERCU)).
- Issuer`s natural monopoly on supply of electric energy within Lugansk Oblast.
- Growth in issuer`s net cash flow from the operating activity (to UAH100m from UAH8.3m) during 2003-2007 due to enhanced customers` payments for the energy consumed (to 98% from 78%).
Factors constraining the credit rating
- Issuer`s dependency upon state regulatory policy of the sector, specifically the NERCU`s tariff policy.
- Issuer`s significant debt burden: in fact, as of Dec. 31, 2007 the consolidated debt (including the restructured debt to DP Energorynok) amounted to UAH778m, which 3.9x exceeds the issuer`s equity.
- A significant volume of the population`s (UAH251m) and communal companies` (UAH349m) accounts receivable, which is in excess of the issuer`s equity of UAH199m as of Dec. 31, 2007, with the major part of the accounts receivable exceeding 3 years.
- High level of concentrations of electric energy supplies by major customers, in fact the specific gravity of 4 biggest customers made up 45-50% in the past few years.
- Low issuer`s performance indicators, specifically the EBITDA profitability indicator made up a. 4% in 2006-2007.
Information on all credit ratings assigned in accordance with the National Scale may be found in REUTERS, BLOOMBERG and FTN MONITOR information systems.
For more information, please contact:
Information and analytic department
Sergey Rozumyak +38 044 490 25 50
SRozumyak@credit-rating.com.ua
