Press Releases / 27.11.2015
Press Release as of 27.11.2015
OJSC Kaluga Power Supply Company
AK&M Rating Agency has assigned an 'A' tier 3 national scale credit rating to OJSC Kaluga Power Supply Company. The outlook is stable.
The 'A' rating indicates that the Company is highly creditworthy. The risk of a failure to meet obligations in time is low, the full or partial debt restructuring risk is minimal. The rating assignment was based on the Credit Rating Methodology for Corporates (Issuers) and Financial Assets rev. January 23, 2014 including the amendments approved by the Methodology Committee on February 18, 2015).
OJSC Kaluga Power Supply Company supplies electricity to ultimate consumers (individuals and legal entities) operating within the borders of Kaluga region. The company is the sole and last resort electricity supplier in Kaluga region (except for the services provided by JSCo Oboronenergosbyt).
The credit rating of OJSC Kaluga Power Supply Company is supported by the comfortable coverage of financial liabilities by real cash flows, a fairly high accounts receivable to accounts payable ratio, low currency risks, the company's monopolistic position in the market of electricity sales, and efforts to develop own generating capacities.
As of October 1, 2015, the ratio of total loan obligations to 12-month cash flow was estimated at 4.0 indicating the Company's fairly high capability to repay its debt out of real cash flows. Besides, this ratio is looking down, which implies improvements of the Company's debt repayment capability in the medium term.
The amount of accounts receivable from consumers is below the amount of accounts payable to wholesale electricity suppliers; the ratio between these figures exceeds 0.8 demonstrating that the company's operating liabilities are commensurate with its operating assets. The sound balance reduces risks of both excessive additional financing sources and insolvency.
Another positive rating argument for OJSC Kaluga Power Supply Company is its high accounts payable turnover, an evidence of the Company's good payment discipline in relations with electricity suppliers, the budget and other creditors. Besides, the rated Company's significant capability to service serve its creditor indebtedness over a short space of time increases the pool of resources that may be used for loan repayment purposes.
Amidst the western sanctions imposed on Russia, the lack of predictability and elevated volatility of currency exchange rates, the low currency risks assumed by the Company contribute essentially to the credit rating. The Company is focused on the domestic market as regards both suppliers and consumers. Its loan debt is wholly denominated in Russian rubles, with loans only taken from domestic credit institutions.
OJSC Kaluga Power Supply Company holds a monopoly in the retail electricity market of Kaluga region, which strengthens its business sustainability. The Company supplies electricity to nearly 80% of the consumers in the region, and the status of a sole and last resort electricity supplier provides opportunities to monopolistically sell electricity to the population.
We appreciate the Company's efforts to develop own generating capacities using advanced high-technology equipment, the Obninskaya gas turbine CHP plant no. 1. Although the output by the gas turbine plant accounts for a mere 2% of the total sales, the vector of development and the consistent development plans provide appreciable business expansion opportunities.
Besides, the commissioning of the gas turbine CHP plant has enabled the Company to enter the market of heat sales, which contributes to diversification of the products supplied to consumers.
At the same time, the credit rating is constrained by the Company's low profitability, weak revenue growth and the state regulation of tariffs applying to a large part of the Company's consumers.
The economic efficiency of OJSC Kaluga Power Supply Company leaves much to be desired. Its return on sales and return on assets ratios reach 1.4% and 0.5%, respectively, which is below the average levels in the industry. Besides, revenues from sales increased by a mere 0.2%, despite a substantial increase in electricity prices (about 6% in 2015).
Another constraint on the Company's credit rating is the state tariff regulation component in the pricing system. The electricity and heat price regulation applies to a large portion of ultimate consumers, which exerts considerable influence on the Company's operating performance.
In 2003, OJSC Kalugaenergo started implementing corporate restructuring procedures. In the same year, standalone and financially viable companies responsible for electricity sales, grid operation and power generation were established on the basis of Kalugaenergo. OJSC Kaluga Power Supply Company was officially incorporated on April 1, 2004.
Full name: OJSC Kaluga Power Supply Company (name literally translated from Russian, seeing as the Company's charter does not specify an official corporate name in English).
Location: per. Suvorova 8, 248001 Kaluga, Russia
As of June 30, 2015, assets of OJSC Kaluga Power Supply Company totaled RUB 4.76 billion, authorized capital amounted to RUB 18.3 million.
The company's reports are audited by Audit Firm Business Audit LLC.
AK&M Rating Agency has assigned a credit rating of OJSC Kaluga Power Supply Company for the first time.
The rating is valid until November 2016. AK&M Rating Agency may revise the rating and/or the outlook during this period if circumstances fundamentally influencing the Company's creditworthiness are revealed.
For estimation purposes, we completely rely on the reliability of information provided by the Company. The rationale for AK&M Rating Agency's judgment on the rating may include information acquired from other sources we deem to be reliable; however, the agency does not check the input data exhaustively and disclaims all responsibility for their possible errors.
This press release is based on the Statement of assignment of a credit rating to OJSC Kaluga Power Supply Company. The rating assignment was based on the Credit Rating Methodology for Corporates (Issuers) and Financial Assets rev. January 23, 2014 including the amendments approved by the Methodology Committee on February 18, 2015).
The rating, along with any information and conclusions provided in this press release, only conveys our opinion on the Company's creditworthiness and shall not be construed as a recommendation to purchase or sell securities, or to lend funds.
AK&M Rating Agency shall not be held liable for any interpretations, inferences and consequences related to the application of results of the rating estimation procedure by any third parties.
AK&M Rating Agency is a leading independent national rating agency engaged in rating activities since 1993. CJSC AK&M Rating Agency is accredited by the Ministry of Finance of the Russian Federation (order no. 452 as of September 17, 2010) and is on the Central Bank of Russia's Register of Accredited Rating Agencies.
AK&M Rating Agency
Ul. Gubkina 3, Moscow, Russia
Phone no. (495) 916-70-30, fax no.: (499) 132-69-18.