EP Infrastructure (EPIF), 31% owned by Macquarie-managed funds, is set to pay EUR 1.5bn in dividends between 2017 and 2019, according to S&P Ratings.
EPIF owns energy generation, transmission and distribution assets in Slovakia and Czech Republic.
The high dividends over the next two years will come from free cashflow from operations, resulting in a negative discretionary cash flows. In other words, rather than reinvesting profits or reducing debt, its cash will go straight to shareholders.
In addition, the company is planning to refinance EUR 1.2bn of holding company bank debt, according to S&P.
S&P, which last week assigned a BBB rating to EPIF, expects EPIF to issue debt with a tenor of at least five years and an average cost of debt of 3%.
EPIF is 69% owned by Czech energy conglomerate Energetický a průmyslový holding (EPH). However, the shareholder agreement reduces EPH’s influence of EPIF, boosting its rating.
EPH signed a EUR 1.6bn syndicated loan at the EPIF level in March 2016. The five-year loan had three tranches: a five-year tranche paying 300bps, a four-year tranche paying 260bps and a three-year tranche with a 225bps margin, according to sister publication Debtwire. Citi, ING, Societe Generale and UniCredit underwrote the deal.
S&P forecasts that EPIF will have a debt to EBITDA ratio of less than 4.5x between now and 2019, and there are dividend lockup clauses if it exceeds this level of leverage. Funds from operations to debt is forecast at around 15% between 2017 and 2019.
Under S&P’s proportionate consolidation approach, EPIF had EBITDA of EUR 787m in 2016, with a stable EBITDA margin around 40%.
It owns 49% of Slovak gas utility SPP Infrastructure, and 49% of Slovak electricity distribution network operator Stredoslovenska energetika (SSE) as well as gas transmission and storage, district heating, renewables and energy trading assets in Czech Republic and Slovakia.
EPIF’s earnings are 79% from the Slovak activities and 19% from the Czech. Midstream activities (gas transmission and storage) make up around 55% of the EBITDA.
Regulated activities such as gas electricity and heat distribution represent about 40% while the remainder includes unregulated energy supply and trading, and heat generation.
The assets are relatively modern, meaning capex until 2019 will be just EUR 370m.
However, the current financial structure does not allow for more debt-funded acquisitions without a ratings downgrade, according to S&P.
Macquarie European Infrastructure Fund (MEIF) V, also managing funds from China Investment Corporation, German pension funds led by Ärzteversorgung-Westfalen Lippe, Versorgungswerk der Zahnärzte Westfalen-Lippe and Versorgungswerk der Tierärzte Westfalen-Lippe and Lombard Odier Macquarie Infrastructure Fund, acquired the minority stake in February 2017. They did not add acquisition debt, Inframation reported at the time.
EPIF could not be reached for comment. Macquarie declined to comment.