NGC

REGIONAL credit rating agency CariCRIS yesterday downgraded its ratings on the US$400 million bond issue of wholly State-owned National Gas Company.

NGC’s rating by CariCRIS was lowered by one notch to CariAA (foreign and local currency) on the regional rating scale, and ttAA on the Trinidad and Tobago (T&T) national rating scale from CariAA+ (foreign and local currency) on the regional rating scale and ttAA+ (Local Currency Rating) on the national rating scale.

The rating agency said these ratings indicate that the level of creditworthiness of this obligation, adjudged in relation to other obligations in the Caribbean and within T&T is high.

“The downgrade is driven by the higher cost of gas from upstream suppliers and historically low international commodity prices, which have resulted in compressed profitability margins, adversely impacted financial performance, and constrained debt service metrics. Moreover, NGC’s pronounced vulnerability to fluctuations in both local and international market conditions has also contributed to its lowered ratings,” said CariCRIS.

The rating agency said it has also assigned a negative outlook to NGC’s lowered ratings.

“The negative outlook is predicated on the uncertainties in the global economic environment together with the changing business model that is characterised by rising natural gas supply costs and substantially reduced international energy commodity prices, which are likely to have adverse impacts on NGC’s financial performance and debt protection metrics going forward,” said CariCRIS.

The rating agency added NGC’s creditworthiness continues to reflect the company’s strategic importance to the domestic energy sector and the Government of the Republic of Trinidad and Tobago (GoRTT) as well as the stabilisation in gas supply with continued exploration and development activity.

Further supporting the ratings is NGC’s low gearing and good debt protection metrics, though reduced from prior years, said CariCRIS.

“These rating strengths are tempered by the company’s significantly reduced earnings and profitability due to falling energy commodity prices and its high vulnerability to a changing energy landscape, characterised by compressed margins on account of falling energy prices and higher upstream prices,” said CariCRIS.

Addressing NGC’s rating sensitivity, CariCRIS outlined the factors that can lead to an improvement in the ratings/outlook:

• An improvement in the CariCRIS credit rating of the GoRTT

• An increase in the debt service coverage ratio (DSCR) to >3 times for two consecutive years leading to an improvement in the ability to service its amortised debt payments

Factors that can lead to a lowering of the ratings/outlook:

• Debt / EBITDA increases to >5 times

• A fall in the effective DSCR to

• A significant decline in international prices of ammonia/methanol, leading to a material decline in revenue

• Inability to monetise receivables from T&TEC which could constrain NGC’s cash flows

• Deterioration in the CariCRIS credit rating of the GoRTT.

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