EVN is the first government-linked non-financial corporate in Vietnam rated by Fitch.
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EVN is expected to generate more than VND80 trillion (US$3.51 billion) in operational cash flow each year through 2020. However, it is likely to face large negative free cash flow owing to its high capex plans and will require external funding to manage its capex targets, which, according to Fitch, can be secured due to its close links to the sovereign. Fitch estimated EVN's funds for operations (FFO) adjusted net leverage to stay around 5x over the next two to three years.
Under Fitch's Government-Related Entities Rating Criteria, EVN's ratings will be equalized to that of the sovereign in case of any weakening in its standalone credit profile, provided linkages remain intact.
EVN's standalone credit profile benefits from its position as the owner and operator of Vietnam's electricity transmission and distribution network and near 61% share of the country's power generation capacity. The group has steadily augmented its generation capacity and cut transmission and distribution losses over the previous few years.
An upgrade of EVN's standalone credit profile is contingent upon the consistent application of electricity regulatory reforms, including timely changes to tariffs that reflect cost changes.
Fitch believed the socio-political implications of a potential EVN default are strong, as a default by EVN would lead to service disruption in light of the company's entrenched position across the electricity-sector value chain. It would also be difficult to fund new power investments.
Fitch also considered the financial implications of a potential default by EVN as very strong, as this would significantly affect the availability and cost of domestic and foreign financing options for the state and government-related entities, as EVN is one of Vietnam's key borrowers.
The state-owned company owns and operates about 61% of the country's total installed generation capacity, including large strategic hydro-power assets, which the government uses to generate electricity, control floods and for irrigation. EVN also operates the national power-dispatch system, selling electricity to more than 25 million customers across the country. The group has steadily augmented its generation capacity and cut transmission and distribution losses over the previous few years.
Electricity demand in Vietnam is forecast to continue increasing at an average rate of 9% per annum, driven by rising industrialization, urbanization and affluence.
Vietnam has a solid national electrification ratio of 99.2%, with the ratio reaching almost 100% in urban areas. According to management, all electricity consumers are billed regularly and collection rates are between 99% and 100% across EVN's five power distribution companies, according to Fitch.
