Slovenia’s HSE to issue €285mn 7-year bond

By bne IntelliNews March 7, 2016

Holding Slovenian Power Plants (HSE), Slovenia’s largest state-owned power utility, announced on March 4 it plans to issue a €285mn bond with a maturity of up to seven years in 2016. The company will hold a roadshow in major European financial centers on March 7-11.

Three months ago, HSE said it would need long-term financing to shore up its balance sheet, which has been heavily affected by cost overruns of unit 6 at the Sostanj Thermal Power Plant (TES).

On March 4 HSE said it decided to issue the bond to cover existing loans after rating agencies Moody’s and Standard and Poor’s (S&P) announced the company’s credit rating with a stable outlook. Moody’s assigned a provisional Ba2 corporate family rating while S&P assessed the company’s preliminary stand-alone credit profile at b+ and preliminary long-term corporate credit at ‘BB’.

Both rating agencies assigned HSE a lower baseline rating but notched it up due to the likelihood that the government will provide support in the event of distress.

“Moody's cautions that HSE's liquidity is weak. The provisional rating is thus based on the assumption that HSE will take the necessary steps to address its 2016 debt maturities, which Moody's estimates at around €300mn, in a timely fashion,” Moody’s said on March 3.

“In this regard the successful issuance of the new notes is key to the assigned rating as it will enable the company to remove near term refinancing risk and create financial flexibility to more comfortably accommodate the current weak commodity price environment.”

“The positive outlook reflects our expectations of improving operating and performance and debt reduction that could support an upgrade over the next two years,” S&P said on March 3.

The company’s is under pressure after the cost of the controversial unit 6 at the Sostanj Thermal Power Plant (TES) ballooned above the preliminary estimate of €600mn to a final price tag of over €1.4bn.

According to Slovenian Court of Audit findings from August 2015, the Unit 6 project was unsuccessful and an additional risk for HSE because it was “poorly managed" and lacked transparency. In 2014, 10 people were charged with fraud in relation to the project, which has also been criticised on environmental grounds.

The Slovenian government rejected a request from HSE to help TES to meet its financial obligations following the construction of a new generator, Slovenian Press Agency (STA) reported. On January 5, the Slovenian government turned down the request for the national grid operator to buy 15% of its electricity from TES and for changes to a state loan guarantee act, saying it sees no reason why the loan guarantee act should be changed.

Under the act, a loan guarantee for a €440mn loan from the European Investment Bank (EIB) has been provided to support the €1.4bn investment into TES's new unit. The act stipulates, among other things, that the total value of the project should not exceed €1.3bn. The European Bank for Reconstruction and Development also provided funding for the project.

According to Bankwatch analysts, Unit 6 is expected to make losses of €70mn-€80mn a year for several years.

“Our view of HSE's financial risk profile as highly leveraged reflects the group's high debt and weak cash flow generation, mainly due to its large investment in the newly built thermal power plant. We understand that one of the group's key strategic objectives is to reduce debt as heavy investments are now completed,” S&P said.

The HSE Group is the largest Slovenian power generator, and is the largest producer and trader with electricity on the country’s wholesale market. The group also operates in Croatia, Serbia, Macedonia, Italy, Hungary, Czech Republic, Romania and Slovakia.


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