The outlook for the credit rating of EN+ GROUP IPJSC (hereinafter, EN+ GROUP or the Company) has been changed to positive based on the positive dynamics of the financial indicators of the Energy Segment in 2022 vs. 2021, improvement of the forecast for the future operation of the segment, as well as payment of dividends last year by UC RUSAL, IPJSC (ACRA rating A+(RU), outlook Stable). In 2022, the Energy Segment (EN+ Holding ILLC and the companies in its group) demonstrated 14.4% growth in revenues, as well as 3% growth in FFO before net interest payments and taxes, a 6.6% decline in debt, and an improved liquidity position.
The Company’s credit rating is based on the good assessment of the quality of assets and their not very high diversification by investment objects. Low leverage lends considerable support to the Company’s financial risk profile. The rating is limited by low coverage.
EN+ GROUP is the parent company of a vertically integrated aluminum and power group that participates in the production of aluminum and electricity generation. The Company includes assets of the Metallurgical and Energy Segments. The Metallurgical Segment includes subsidiary company UC RUSAL, IPJSC (hereinafter, RUSAL), in which the Company holds a 56.88% stake. The Energy Segment participates in all areas of the electric power business: generation of electricity and heat energy, selling electricity, capacity, and heat energy, distributing heat energy, selling electricity to final consumers, and engineering. Hydroelectricity is a core business of the Group’s Energy Segment, with the majority of its assets located in Siberia.
KEY ASSESSMENT FACTORS
Good quality of the Company’s assets. As part of the rating analysis of RUSAL, ACRA determined its standalone creditworthiness assessment (SCA) at a+, based on a strong market position as a global aluminum manufacturer and a strong business profile assessment, which in turn is driven by the low cost of aluminum production and a substantial resource base. At the same time, the product diversification assessment is below medium because despite its various commodity types, aluminum is the only product of RUSAL. The SCA is supported by the very strong assessment of geographic diversification of sales and the high level of corporate governance, as well as the very high score for the Concentration on a Single Minefield sub-factor. RUSAL’s SCA is constrained by the high leverage indicator. ACRA notes that dividends were not paid by RUSAL to EN+ GROUP in 2019–2021, at the same time, RUB 10.6 bln in dividends were paid to the Company in 2022. ACRA does not expect RUSAL to pay dividends in 2023–2025. Maintenance and development of EN+ GROUP during the analyzed period (2020–2025) was mainly carried out and is planned to be carried out at the expense of the Energy Segment, which considerably increases the weight of the assessment of the latter when determining the credit rating of EN+ GROUP.
The Energy Segment consolidates all of the energy operations of EN+ GROUP. The Company is engaged in the production of electricity and heat supply; its installed capacity is 19.4 GW and 14,600 Gcal/h. The key operating assets of the Energy Segment are mainly located in the Irkutsk Region and the Krasnoyarsk Krai.
The Energy Segment is characterized by the following factors: (1) a good market position, as it represents one of the largest power generating companies in the Russian Federation and the largest in Siberia. At the same time, certain companies in the Energy Segment have direct long-term contracts with companies in the Metallurgical Segment that stipulate a 3.5% discount to day-ahead market prices; around 40% of electricity produced is supplied under these contracts; (2) minimal price and sales risks, which is achieved due to the generation structure; overdue short-term receivables for 2022 amount to 1.5% of revenues; (3) minimal supplier risks because coal for thermal power plants is provided by EN+ GROUP companies; (4) high profitability due to the use of hydroelectric power plants; (5) a good liquidity assessment. There are peaks of debt repayment in 2025–2026, while the availability of cash and deposits totaling RUB 14.8 bln (as of June 30, 2023), as well as available credit limits totaling RUB 197.6 bln, support the level of liquidity. Constraining factors include high leverage, including concentration on a single creditor and medium coverage.
Moderate diversification of investments. The portfolio of the Company’s investments is mainly made up of investments in RUSAL and the Energy Segment, and incoming cash flows are proceeds from the latter.
Low leverage and coverage. The Company does not have any external debt, it only has intragroup loans. The Company does not plan to raise external debt financing. EN+ GROUP is financed mainly by the Energy Segment to the extent necessary to meet its obligations. In 2022, LTV was 6.6% and coverage of debt was 1.2x.
Liquidity. Due to the absence of external debt, the Company’s only significant expense item is intragroup payments to reallocate funds within the Energy Segment. At the same time, the Company has not made dividend payments in recent years. The Company’s lack of open credit lines restricts its liquidity assessment.
KEY ASSUMPTIONS
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No growth in leverage or reduction of coverage;
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Stable financial standing of assets;
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No significant transactions for the Company.
POTENTIAL OUTLOOK OR RATING CHANGE FACTORS
The Positive outlook assumes that the rating will highly likely be upgraded within the 12 to 18-month horizon.
A positive rating action may be prompted by:
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Coverage exceeding 2x;
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Higher SCA of assets;
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Improved assessment of the quality of the Company’s investments due to new investments.
A negative rating action may be prompted by:
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Higher leverage;
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Lower coverage;
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Declining SCA of assets;
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Worsened assessment of the quality of the Company’s investments due to new investments;
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Declining portfolio liquidity.
RATING COMPONENTS
SCA: а-.
Adjustments: none.
ISSUE RATINGS
There are no outstanding issues.
REGULATORY DISCLOSURE
The credit rating of EN+ GROUP IPJSC has been assigned under the national scale for the Russian Federation based on the Methodology for Credit Ratings Assignment to Non-Financial Corporations under the National Scale for the Russian Federation and the Key Concepts Used by the Analytical Credit Rating Agency Within the Scope of Its Rating Activities.
The credit rating of EN+ GROUP IPJSC was published by ACRA for the first time on August 22, 2022. The credit rating and its outlook are expected to be revised within one year following the publication date of this press release.
The credit rating was assigned based on data provided by EN+ GROUP IPJSC, information from publicly available sources, and ACRA’s own databases. The credit rating is solicited and EN+ GROUP IPJSC participated in its assignment.
In assigning the credit rating, ACRA used only information, the quality and reliability of which were, in ACRA’s opinion, appropriate and sufficient to apply the methodologies.
ACRA provided no additional services to EN+ GROUP IPJSC. No conflicts of interest were discovered in the course of credit rating assignment.
