All approvals granted for the new Eidsiva to emerge

Both the City of Oslo and Eidsiva owners have now granted final approval to merge Eidsiva and Hafslund E-CO’s grid and power production units at their general meetings on 25 and 27 June, respectively. The transaction has also been cleared by authorities.

Implications

As a result, the transaction will proceed as planned and as described in Scope’s rating action release dated 26 March 2019, in which Eidsiva’s issuer rating was upgraded by two notches to BBB+.

Transactional details have altered slightly since the last rating action, but this does not change Scope’s credit view of the company. The main change concerns the 42.8% minority interest in E-CO Energi AS, to which Eidsiva will grant a NOK 1.9bn loan. As a result, Eidsiva will receive new cash interest, while dividends will be less than previously assumed. Still, there are no material changes in funds from operations or the overall balance sheet.

Eidsiva’s corporate issuer rating of BBB+/Stable primarily reflects the high share of EBITDA from monopolistic grid business (around 80%) with its predictable cash flow. Domestic market dominance, customer diversification and efficiency are also key drivers for Scope’s business risk assessment. This is coupled with the favourable weighted average industry rating in accordance with Scope’s utility rating methodology.

Scope also expects the financial risk profile of the new Eidsiva to improve, although not as much as the business risk profile. The agency forecasts lower leverage and stronger debt protection ratios in the short to medium term. Scope-adjusted leverage is expected to average around 5x, and debt protection to average around 7x.

Scope expects free cash flow generation in the new Eidsiva to be only marginally better, as extensive investment plans will negatively affect discretionary cash flow and necessitate external financing until 2020. However, cash flow is expected to be more predictable and less volatile going forward, thereby bolstering the average forward-looking Scope-adjusted FFO/debt ratio to around 18% from 8% historically. Scope’s liquidity assessment now also incorporates the agreed bridge loan and presented refinancing plan.

Download the updated report here.

This publication does not constitute a credit rating action. For the official credit rating action release click here.