The third bond from Photon Energy N.V., a family-run, listed Dutch developer and operator of solar power plants for its own electricity production and for third parties, is new to the URA observation.
“In addition,” adds Jens Höhl, Managing Director of URA Research GmbH, “there have recently been activities such as electricity storage and water treatment.” Photon III – like the partially exchanged 2nd bond (2017/2022, still EUR 24 million outstanding) – received 1 “URA Check”.
The analysts at URA Research see the following strengths:
- The main source of sales is electricity generation: a stable cash flow with mostly government-guaranteed long-term terms.
- Unusually detailed quarterly financial reports (but only in English) and increase of the interest coupon by a high 1% if the self-chosen transparency obligations are violated.
- It is a “green bond”: the sustainability in the sense of a conformity of the use of funds and reporting with the green bond principles of the ICMA was confirmed by imug rating GmbH in a second party opinion with “very good”.
- Bonds significantly oversubscribed (green bonds strongly supported by regulatory requirements) and increased by EUR 5 million to EUR 55 million.
- Quarterly interest payments and commitment to a minimum equity ratio (a supporting capital increase took place in 2021).
The URA Research analysts see the following weaknesses:
- Comparatively small providers in a market with low entry barriers; broad regional presence (head office in NDL, bond in DEU, operational, mainly in Eastern Europe and Australia).
- Great dependence on the weather as well as on government regulations and subsidies (most recently in some countries retroactive deterioration).
- However, increased development of countries like Australia, in which solar power is competitive even without subsidies.
- EBITDA interest coverage and net debt / EBITDA only sufficient due to low returns (e.g. rising personnel costs as advance payments in project development) as well as high financial debt and interest expenses typical of the industry.
- The balance sheet equity was only positive as of September 30, 2021 due to a high revaluation reserve for property, plant and equipment (IFRS); the latter can also melt away quickly in the event of operational problems or rising discount rates.
- In the last 5 years always a negative free cash flow including interest income (negative earnings after taxes in 8 of the last 10 years, very high investments in new solar power plants, especially in the last 3 years); this is unlikely to change much due to ambitious growth plans (including seven-fold increase in the output of their own power plants by the end of 2024) despite the planned five-fold increase in Group EBITDA.
- The issuer is a pure holding company with no operational business. In order to serve the bondholders, it is therefore dependent on the interest payments for the shareholder loans granted (and their repayment) as well as on distributions from the around 120 subsidiaries. The latter have high bank liabilities with numerous “financial covenants” (in some cases including distribution limits); most of their assets are pledged to banks.