26 May 2020
Posted in Power
Utilities maintain liquidity to deal with uncertain market conditions caused by the COVID-19 pandemic
To cater to reduced demand and uncertain market conditions caused by COVID-19, utilities need to ensure that they have enough liquidity to safeguard their performance and smooth operations, says GlobalData, a leading data and analytics company.
Utilities face liquidity issues as their receivables are delayed or defered and revenues have declined due to reduced demand. Many utilities in these difficult times are lending a helping hand to customers by providing electricity to even those who are failing to pay their electricity bills. In order to maintain cashflows, tackle supply chain disruptions, handle repairs and replacement of components, utilities should ensure they have proper liquidity. Many utilities are opting for bonds as they are safer instruments as they offer less volatility compared to stocks and at times offer higher interest payments compared to dividends.
Somik Das, Power Analyst at GlobalData, comments: “Long and medium-term bonds might just be the best option for struggling utilities, as it will allow them to maintain liquidity in the current volatile environment.
“If the virus outbreak persists and government-mandated restrictions are extended, then utilities can pursue other measures to protect their liquidity. Utilities might first delay certain investments keeping capital expenditures plans at the same levels and later on reduce operational and maintenance costs. If the economy deteriorates further, then utilities might consider cutting down the capital expenditure budgets.”