London, 27 April 2021 -- Moody's Investors Service (Moody's) has today downgraded to
Baa3 from Baa2 the long-term issuer rating of Botswana Power Corporation
(BPC), a national energy company in Botswana responsible for energy
production, transmission, distribution and supply.
The outlook was changed to stable from negative.
Today's rating action on BPC follows Moody's downgrade of
the long-term issuer rating of the Government of Botswana to A3
from A2 on 23 April 2021. For further information, please
refer to the sovereign press release: https://www.moodys.com/research/--PR_444146.
RATINGS RATIONALE
The rating downgrade reflects the weaker credit profile of the Government
of Botswana and the linkages between the rating of BPC and the credit
quality of the Government of Botswana, given the company's
100% ownership by the state and its role in implementing a range
of policy mandates associated with national development objectives.
The Baa3 long-term issuer rating is underpinned by an expectation
that the Government of Botswana will continue to provide timely financial
support to BPC, as necessary, given the company's weak
financial profile on a standalone basis. It further assumes that
substantially all the commercial borrowings of BPC will continue to be
covered by the government guarantees.
BPC's standalone credit profile is weak reflecting poor asset quality,
with construction issues affecting output from the coal-fired Morupule
B power plant, and contributing to a high dependence on contracts
for power imports. The unreliable output from the company's
power plants results in a volatile financial performance, as evidenced
in the financial year ended March 2020, when BPC reported a net
loss of P1.4 billion. While Morupule B power plant is undergoing
remediation, the programme will not be completed before 2023 at
the earliest. A further constraint on the company's credit
quality is weak liquidity, reliant on timely cash transfers from
the government and a tariff setting framework, which lacks transparency
and has not provided for cost and investment recovery in the past.
Overall, under Moody's Government-Related Issuers Methodology
(GRI), the Baa3 long-term issuer rating of BPC combines (1)
the company's baseline credit assessment (BCA) of b2, and (2) Moody's
assessment of very high dependence and very high likelihood of extraordinary
support being provided by the Government of Botswana. Moody's assessment
of a very high probability of government support in the event of financial
distress reflects (1) the strategic importance of BPC as the only energy
utility in the country, (2) ongoing state support in the form of
revenue and capital transfers, and (3) the government guarantees
covering BPC's bank loans. Moody's assessment of a very high
dependence takes account of BPC's domestic focus.
The issuer rating expresses a view on the credit risk of BPC excluding
any specific contractual credit support provided to the lenders of the
company through the government guarantees.
RATIONALE FOR STABLE OUTLOOK
The stable outlook on BPC is in line with that on the Government of Botswana,
reflecting that the company's rating is very strongly influenced by that
of its sole shareholder.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
Given the operational challenges facing BPC, upward rating pressure
is unlikely in the medium term.
Downward rating pressure could occur if (1) there was any uncertainty
about the government continuing to provide timely financial support to
BPC; (2) the company's financial profile were to deteriorate;
(3) there was a material change in the company's capital structure (for
example, if BPC were to raise unguaranteed debt); or (4) Moody's
assessment of very high support for the company were revised downwards.
In addition, severe delays or uncertainty around the remediation
programme of Morupule B plant or material weakening in the credit quality
of the Government of Botswana could also put downward pressure on the
rating.
The methodologies used in this rating were Regulated Electric and Gas
Utilities published in June 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1072530,
and Government-Related Issuers Methodology published in February
2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1186207.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of these methodologies.
Headquartered in Gaborone, Botswana, Botswana Power Corporation
is a national energy company responsible for the country's generation,
transmission, distribution and supply of electricity. It
is 100% owned by the Government of Botswana. In the financial
year ended March 2020, BPC generated revenues of P3.4 billion
(USD314 million).
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
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same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
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issued on a support provider, this announcement provides certain
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support provider and in relation to each particular credit rating action
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provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
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For any affected securities or rated entities receiving direct credit
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and whose ratings may change as a result of this credit rating action,
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review.
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and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1263068.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
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Joanna Fic
Senior Vice President
Infrastructure Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Neil Griffiths-Lambeth
Associate Managing Director
Infrastructure Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
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