Fitch Gives Nampower Stable Outlook

FITCH Ratings has affirmed Namibia Power Corporation (NamPower) long term foreign currency Issuer Default Rating (IDR) at ‘BBB-‘ and Short-Term IDR at ‘F3’.

Fitch has also affirmed NamPower’s national long term rating at ‘AA-(zaf)’ and its Short-Term rating at ‘F1+(zaf)’.

The outlooks on the long term ratings are stable, the agency said yesterday.

It said the affirmation reflects the alignment of NamPower’s ratings with those of the Namibian sovereign (BBB-Stable).

“In Fitch’s view, the ties between NamPower and its sole shareholder are likely to remain g in the foreseeable future. NamPower is the monopoly electricity company in Namibia and has a crucial role in executing electrification policies and ensuring sufficient electricity supply. This includes the Kudu Power project, for which we expect significant undertakings by the government.”

Fitch said given the track record of tangible state support and the government’s involvement in NamPower’s investment decisions, it expects this relationship to remain unchanged in the medium term. NamPower has previously benefited from state financial support in the form of an energy subsidy for N$360 million in 2008.

Fitch expects future energy subsidies to pay for the fuel used in generation before Kudu power station comes into operation. The state also guarantees 21% of NamPower’s debt as at the financial 2013.

NamPower is expected to be the controlling partner for the Kudu Power combined cycle gas turbine project with estimated total costs US$1,24 billion, including financing costs and with 7030 debt to equity ratio.

The government will provide a significant contribution, including guarantee undertakings, limiting financial and commercial risks for NamPower.

In the 20142015 budget, the government has provided for N$1,6 billion and a further N$2,6 billion is likely to be provided in the 20162017 budget for NamPower to support Kudu Power. NamPower’s minimum 51% equity component for Kudu Power Special Purpose Vehicle (SPV) is estimated at US$190 million (N$1.9 billion). The final investment decision for Kudu Power is expected in June.

Copperbelt Energy Corporation (CEC) has signed a joint development agreement and will have a stake of approximately 20% to 30% in the Kudu Power SPV. NamPower will on sell 200MW to 300MW to CEC. Further equity (19% to 29%) will be sourced from other strategic investors and off-take counter parties.

All the power produced by Kudu Power Station will be sold to NamPower through a long term PPA. This is expected to create a secure revenue stream sufficient to support all Kudu Power’s costs including debt servicing, operational commitments and investor returns. NamPower will sell about half of the power on the domestic market under the existing cost pass through regulation with the remainder being exported under long-term Power Export Agreements (PXA).

NamPower will continue to import an increasing amount of electricity to satisfy domestic demand.

“Fitch expects NamPower’s operating margin to decrease due to the relatively expensive imports compared with its own hydro power. Although the tariff regulation allows for cost pass through, electricity imports will likely dilute the profit margin.

“Fitch expects near term material weakening in NamPower’s credit ratios due to the margin reduction and increased investments with a recovery expected post Kudu Power commissioning. As a result, we believe NamPower will likely face pressure on some of its loan covenants with the Development Financial Institutions (DFIs), but we expect that DFIs will likely take a longer-term view and allow medium term relaxation of covenants.”

The company may also invest further minority equity into a scalable private public partnership project to provide up to 250 MW of heavy fuel or gas fired modular capacity to balance the domestic market demand and strategically support security of supply.

NamPower had a N$1,7 billion cash buffer as of the 2013 financial year supported by a relatively liquid investment portfolio of N$2,9 billion.

Source : The Namibian