Electricity demand in Vietnam is expected to continue to increase at an average rate of 9.5 percent per year. (Source: EVN) Hanoi (VNS/VNA) - Vietnam Electricity's (EVN) long-termforeign-currency issuer default rating stands at 'BB' with a positiveoutlook, according to Fitch Ratings.
Therating reflects the agency's outlook on Vietnam (BB/Positive), which wasrevised to positive from stable on May 9 this year.
Fitch hasalso affirmed EVN's senior unsecured rating of 'BB' and standalone creditprofile (SCP) of 'bb'.
EVN'sratings are equalised with those of the sovereign rating under Fitch'sGovernment-related entities' rating criteria. This is due to Fitch'sassessment of a strong likelihood of State support in light of the group'sstrategic importance to the power sector in Vietnam.
EVN's SCPreflects its position as the owner and operator of Vietnam's electricitytransmission and distribution network, and its near 58 percent share of Vietnam'spower generation capacity.
Fitchsees EVN's status, ownership and control as 'Very Strong'. The State fully ownsEVN, appoints its board and senior management, directs investments, and approvestariff hikes in excess of 5 percent.
“Thesupport track record and our expectations of State support for EVN are 'Strong'as the company has received guarantees, step-down loans, loans from State-ownedbanks at preferential rates, subsidies for strategically important projects,and tax incentives. We expect support to be available if needed, even thoughthe government intends to lower direct support for state-owned enterprises andcontain sovereign debt levels," Fitch said.
Accordingto Fitch, electricity demand in Vietnam is expected to continue toincrease at an average rate of 9.5 percent per year, driven by risingindustrialisation, urbanisation and affluence. Vietnam has a solid nationalelectrification ratio of about 99 percent, with the ratio reaching almost 100 percentin urban areas. Management has said all electricity consumers are billedregularly and collection rates are between 99 percent and 100 percent acrossEVN's five power-distribution companies.
Hydropoweraccounts for about 42 percent of Vietnam's power-generation capacity. Yearswith productive hydropower generation have lifted EVN's profit margin, butperiods of lower rainfall have forced the company to rely excessively onexpensive coal.
About 65 percentof EVN's borrowings are denominated in foreign currency, exposing the companyto substantial currency risk. Lower gains in electricity sales volume alsosubject EVN to financial stress due to the company's high capex plans.
However,Fitch expects EVN to adjust its investments if there is a structural decline indemand. The rating agency believes EVN's financial profilecould deteriorate rapidly in the absence of regular tariff increases./.
VNA
