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Learn how Bord Gáis navigated near devastation, its business overview, risk management, energy trading, and financial strategy.
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Irish Association of Corporate Treasurers14th April 2010 Michael G. O’Sullivan Finance Director – Bord Gáis Éireann
Bord Gais Today Established in 1976, Bord Gáis is a Commercial State body operating in the energy industry and owned by the Government of Ireland (with a 3.27% ESOP holding) Strong Governmental Support Approx.1m gas and electricity customers, 900 employees and headquartered in Cork 2008 turnover of €1,379m and 2008 EBITDA of €299m 98% of EBITDA generated from Networks Assets Bord Gáis has three main businesses – Networks, Energy and Investments Natural gas accounts for approximately 25% of primary energy demand in Ireland Ireland has one of the most modern and robust gas networks in the world Significant development of the Irish gas network and its UK interconnection over the last number of years means that there is adequate capacity to meet the growing demand for gas In excess of 90% of gas used in Ireland is imported through the interconnectors from the UK Capital intensive industry Our Company Our Industry
Energy • BGÉ’s retail - Gas • supplies gas to over 630,000 customers • 38% share of Irish gas market (99% of Domestic market ) – predominately regulated market • BGÉ’s retail - Electricity • Strategy to leverage strong gas platform to sell a dual-fuel gas and electricity energy solution • c.12% share of Irish electricity market • Entered domestic electricity market in February 2009, with in excess of 300,000 customers already signed • Trading division procures gas and electricity for sale to retail customers • Integrated Support Trader Model • No speculative trading positions • Follows board-approved Energy Trading and Procurement Risk Management Policy BGE Energy comprises separate Retail and Trading divisions that procure and supply gas to 630,000 customers and holds c.12% of the electricity market with a domestic electricity launch in 2009
Strategic Investments - Generation BGE Strategy is to develop a balanced portfolio of generation assets in support of a developing retail position Baseload, high merit order plant – Whitegate CCGT 445MW gas fired combined cycle power plant Commercial operations to begin on schedule in mid-2010 Wind, representative of overall penetration in the market – in excess of c.700MW (with REFIT support, in operation and development) Open Cycle Gas Turbine, providing portfolio shape/response – plan to develop c.300MW Constructing a modern 445MW Open CCGT Power Plant
How Bord Gáis assesses risk .... Reputational Operational Risk Management Strategic Financial 8
Risk appetite informed by ....... appetite is conservative 10
Risk Management Policy Energy Trading Risk Management Policy Communicates the Board’s appetite for risk Sets out a governance framework within which commodity market risks are measured, reported and controlled Sets out the processes and rules for authorising; Which markets, products, contracts and time periods can be traded Which counterparties can be traded with Which members of Energy Trading staff can trade Sets out limits delegated to Energy Trading which govern authorised activity
Commodity Market Risk To deal with volatility in the gas and electricity markets Energy Trading protects itself through: Robust governance structure Hedging strategies Pursuing a vertical integrated strategy for electricity Regulation Portfolio limits such as Exposure limits Mark to market /stop loss limits VaR and GMar Peak day management tools such as storage
Key elements to foreign exchange risk management cycle...... 15
Funding Policy • Maintain 120% headroom of projected core borrowings for current year and 90% for following three years • Fixed Debt 60% for current year and 50% for following three years • Leverage in range of 44-55%, statutory borrowing limit €3bn • No term loans to exceed 50% of portfolio to avoid refinancing risk • Maintain diversified funding base (Project finance/EMTN programme, US$ Private Placement and Bank facilities), 45/55 split between Bank and Debt Capital Markets Liquidity Pricing Leverage Maturity Profile Funding Sources
Interest Rate Profile as at 31 December 2008 1% 21% RPI Linked Floating Fixed 78% Debt Funding Structure Source: Company data
US$ Private Placement BGE successfully circled a US$ private placement in February 2009 The issue was significantly oversubscribed at US$ 532 million. BGE took up its full authority of US$450 million The issue was swapped back to Euro through relationship banks (Euro Equivalent €357 million) A broad maturity spread was achieved with the majority of funds being 10 – 12 year money Pricing reflected recent market activity
Eurobond Issuance • Issuer: BGE • Guarantor: BGE • Ratings: A2/A- • Documentation: Off EMTN Programme • Currency: Euro or Sterling • Size: €550m • Pricing: 5.75% fixed • Maturity: 5 years • Use of Proceeds: GCP and Capital Expenditure Projects • Bookrunners: Barclays Capital, BNP Paribas, Danske, HSBC, LloydsTSB • Issued Bond on 15 June 2009 : Book significantly oversubscribed €2.3bn with a well diversified investor base i.e. 156 orders from 25 jurisdictions with 32% of the bonds being allocated to UK investors, 20% to France, 12% to Scandinavia and 6% to Ireland.
BGE Credit Rating Strong market position Low-risk business operating in a transparent regulatory environment Strong credit profile reflected in ratings Government ownership Strong demand for gas and electricity in Ireland High quality asset base Robust capital structure and strong liquidity position Experienced management team Moody’s Standard & Poor’s Outlook Stable Stable Senior Unsecured Debt A2 A- BGE’s financial strength is underpinned by;
Recent market turmoil has resulted in a marked uptick in Rating Agency reviews with a strong downside bias……….. Credit Rating Activity 23
