FY15 was a challenging year for GOGC’s core businesses. Gas sales were largely flat, while higher cost of gas weighed on operating expenses. FY15 top line grew 7.7% y/y on the back of electricity sales, as Gardabani CCPP commenced operations in Sep-15. FY15 adjusted EBITDA was down 14.2% y/y to US$ 53.3mn. Keeping in mind the regional economic slowdown and household gas subsidies, we forecast flat gas sales in FY16, while high-margin electricity generation should drive a 54.7% y/y increase in adjusted EBITDA. End-2015 net debt-to-adjusted EBITDA came in at 2.6x, well below the 3.5x Eurobond covenant. We see the end-2016 ratio at 1.5x. Construction of Gardabani CCPP II is expected to commence in 2017. A feasibility study for the gas storage reservoir project is to be completed in early 2017.
FY15 revenue grew 7.7% y/y to US$ 218.2mn. While sale of gas, the key revenue stream, was largely flat at US$ 154.0mn, top line got a boost from the addition of electricity sales (US$ 21.5mn), as the Gardabani power plant commenced operations in September 2015. We expect electricity sales to reach US$ 82.1mn and drive revenue growth of 28.4% y/y in FY16, the first fully operational year for the plant.
FY15 adjusted EBITDA contracted 14.2% y/y to US$ 53.3mn, as cost of gas, the key operating expense, surged 16.9% y/y. A new contract was signed with SOCAR in March 2016. Subsequently, average gas purchase price should decline, leading to annual savings of around US$ 10.0mn, and higher volumes should be available for import. We expect FY16 adjusted EBITDA to grow 54.7% y/y to US$ 82.5mn and the EBITDA margin to rebound from 24.4% in FY15 to 29.4% in FY16 on the back of high-margin electricity generation.
The construction of Gardabani CCPP II is expected to commence in 2017. The 240MW power plant will replicate the technical characteristics of the Gardabani CCPP at an estimated cost of US$ 160.0mn. The completion of a feasibility study for the US$ 250.0mn underground gas storage reservoir, aimed at increasing Georgia’s energy security, is now expected in 2017. The company is considering third-party equity contributions and/or project finance as potential financing options.
Net debt-to-adjusted EBITDA ratio deteriorated to 2.6x, largely due to the drop in adjusted EBITDA. Net debt also declined, as a decrease in the cash balance was more than offset by a new US$ 30.0mn credit line, which is added to cash and cash equivalents per the Eurobond prospectus. On the back of significant expected growth in adjusted EBITDA and lower capital spending in FY16, we expect end-2016 net debt-to-adjusted EBITDA to come in at 1.5x, well below the Eurobond covenant of 3.5x.
On April 19, 2016, GOGC successfully refinanced its outstanding GEOROG 05/17 US$ 250mn Eurobond. The new Eurobond, GEOROG 04/21, carries a coupon rate of 6.75% and was placed at a yield of 7.00%. The net debt-to-adjusted EBITDA covenant was revised upward to 3.75x.
