S. Venkat Raman, chief executive officer of regional rating agency CariCRIS. - File
Keith Collister, Business Writer
Monopoly electricity supplier, Saint Lucia Electricity Services Limited (LUCELEC) has become the first non-sovereign entity domiciled in the OECS to receive a credit rating, stamped 'BBB' by the nascent Caribbean Information and Credit Rating Services Limited (CariCRIS).
The rating marks LUCELEC as "investment grade," said S. Venkat Raman chief executive and chief rating officer of two-year-old CariCRIS, a Port-of-Spain-based regional rating service.
The endorsement is an even bigger achievement for LUCELEC than it first seems, given the lack of ratings, sovereign or otherwise, of Organisation of Eastern Caribbean States (OECS) countries.
Managing director Trevor Louisy, quoted in a press release on the rating, said it gives the company visitbility and bargaining power to "negotiate better financial deals" if necessary.
In the region, only Grenada and Montserrat are currently rated by global rating agency Standard and Poors (S&P), which has an ownership stake in CariCRIS through its Indian subsidiary Crisil.
LUCELEC, a listed company on the Eastern Caribbean Securities Exchange, is the sole commercial supplier of electrical energy in St. Lucia, with an exclusive licence to generate, transmit, distribute and sell electricity.
Objective rating
Its chairman, Marius St. Rose, is also a member of CariCRIS' rating committee, but a release from the rating agency said St. Rose did not contribute to the rating decision on the utility.
The company presently operates one power station and seven sub-stations. Its eight generating units represent installed capacity of 65.8 MW, but is adding a ninth generator to provide an additional 10.2 MW.
The company's rating of CariBBB (Foreign Currency) and CariBBB (Local Currency) for its $15 million debt issue, meaning that its obligations are of "adequate" creditworthiness relative to other obligations in the Caribbean. The rating is one grade above speculative on CariCRIS' rating sheet.
Regional significance
The rating is regional significance only. For example, LUCELEC's CariBBB rating would not be considered a higher ranking than Jamaica's single 'B' from international agencies S&P and Moody's.
Regional ratings, however, allow locally relevant credit information and a higher degree of differentia-tion in the credit worthiness of regional issuers than is possible on the global rating scale, where most Caribbean countries are bunched at the lower end.
The CariCRIS rating allows Caribbean investors to match the performance of regional entities more directly against each other, rather than through a global filter.
Citing the example of India, Raman said the country of one billion has a Triple A rating from home-based Crisil, but is ranked Triple B+ (local currency) and Triple B- (foreign currency on S&P's global scale.
Demonstrating commitment
The CariCRIS CEO anticipates acceptance of his rating service as more countries and companies seek regional ratings.
"LUCELEC taking the lead in the OECS of making its rating public, is a milestone for CariCRIS and sets an important precedent for not only the OECS sub-region, but the wider region as well," said Raman.
"We are currently working on some more rating assignments in the OECS, and expect to see more ratings getting published in the near future from the OECS itself."
LUCELEC's chairman, Marius St. Rose, said by accessing and publicising the rating, his company was demonstrating its commitment to accountability and good corporate governance.
Some 45 per cent of LUCELEC's shares are held by the Government of St. Lucia and other entities, while the balance is held by a mix of regional and international investors and the public.
On January 16, Emera Inc, a Canadian energy service company, acquired a 19 per cent equity interest in LUCELEC from a former investor, Caribbean Basin Power Fund (CBPF).
Good performance
The company's overall financial performance is characterised by moderate revenue growth, healthy debt servicing parameters and good liquidity.
For the nine month period ended September 2006, LUCELEC reported a 14.9 per cent increase in revenues to EC$172.9 million from EC$150.4 million in the corresponding period of 2005.
Profits, however, impacted by increased expenses relating to transmission and distribution, plant maintenance, insurance, distri-bution and finance costs, were down 28 per cent to EC $17.5 million from EC $24.6 million.
Its interest coverage remained favourable, albeit lower at 5.44 times, from 7.43 times in the earlier period.
Total assets remained relatively stable at EC$341.5 million as at September 2006, while net worth grew by 10 per cent to EC$156.7 million as at September 2006.
CariCRIS' investment grade rating of the company reflects its healthy financial profile, dominant market position in the country, and favourable operating efficiency.
"These rating strengths are partially offset by the cyclical nature of the demand that LUCELEC services, its indirect exposure to fuel prices and the potential concentration risk that result from its single location generation plant," said CariCRIS in a press release announcing the rating.
"Going forward LUCELEC's credit profile will be dependent upon its ability to undertake debt funded capital expenditure without impairing performance indicators, or any changes to the governing legislation that would adversely impact the company's operations."
keithcollister@cwjamaica.com
