This is a correction of a release published
It corrects the debt type for the bonds under the issuing entities in the list of rating actions.
Fitch Ratings has published
Simultaneously, Fitch has published the 'A' ratings on all of BEHL's existing US dollar and euro bonds that are unconditionally and irrevocably guaranteed by BEHL. A full list of rating actions is below.
BEHL's IDR is aligned with Fitch's internal credit assessment of the parent,
Fitch's assessment of BEG is linked to, but not equalised with Fitch's internal assessment of the creditworthiness of the
Key Rating Drivers
Parent's ' Strong' State Linkage: Fitch assesses BEG's status, ownership and control by the state as 'Very Strong'. The
Parent's 'Strong' Implication of Default: We assess BEG's socio-political implication of default as 'Strong'. BEG supplies 95% of gas in
'High' Strategic Incentive: We assess BEHL's financial contribution to BEG as 'High'. It accounts for 56% of BEG's EBITDA and 47% of assets. Competitive advantage is also 'High', as the company holds BEG's most strategic public utilities, including natural gas distribution, water and solid waste treatment.
BEHL serves a critical role on BEG's behalf in executing key municipal mandates on energy security and environmental protection. BEHL is also an important funding platform for BEG with access to overseas equity and debt markets. Growth potential is assessed as 'Medium', reflecting moderate prospects of growth in
'High' Operational Incentive: This assessment reflects that a high degree of brand and management overlap outweighs the low level of operational synergies between BEHL and BEG. We see a considerable amount of management integration and personnel rotations. The majority of BEHL's executive directors have also served on BEG's management team, and we believe BEG has significant influence on BEHL's strategic, financial and operational decisions. BEHL and some of its major subsidiaries also share the same brand name as BEG.
'Medium' Legal Incentive: Our 'Medium' assessment on this factor reflects the potential for BEHL to trigger the cross-default clause for some of BEG's domestic debt instruments.
Stable Business Profile: BEHL's standalone credit profile (SCP) is assessed at 'bbb', underpinned by the stable cash flow from its core operations.
Moderate Leverage: BEHL's leverage, measured by net debt/EBITDA after proportionately consolidating BE Water, was 4.4x at end-2021 (2020: 5.2x). We expect leverage to rise to around 4.8x in 2022-2024 on higher capex at
Holding-company interest coverage remains adequate despite sizeable debt at the BEHL level, while BEHL maintains strong financing capability as part of BEG.
Derivation Summary
BEHL's ratings are credit-linked to our internal assessment of the parent, BEG, because of strong parent-subsidiary linkages, based on the 'Moderate' legal incentives, 'High' strategic incentives and 'High' operational incentives.
Key Assumptions
BE Water: Proportion of construction revenue to decline during 2022-2025 to reflect the company's change of strategy towards an asset-light model. We expect 2.2 million-2.9 million tonnes a day of additional water supply and wastewater treatment capacity to be operational during 2022-2025, with a stable margin.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Improvement in Fitch's internal assessment of the creditworthiness of BEG, provided BEG's incentive to support BEHL remains unchanged.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Evidence of weakening incentive to support by BEG;
Lowering of Fitch's internal assessment of the creditworthiness of the BEG.
Best/Worst Case Rating Scenario
International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
Liquidity and Debt Structure
Comfortable Liquidity: The company had total borrowings of
Issuer Profile
BEHL is 62.3% owned by BEG. BEHL is mainly engaged in the city gas distribution, brewery, water and waste treatment businesses.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
Public Ratings with Credit Linkage to other ratings
The ratings on BEHL are linked with the creditworthiness of BEG.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
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