Electrica rated BBB by Fitch, investment grade with stable outlook

Aurel Dragan 24/09/2019 | 15:14

Electrica Group obtained the corporate rating of issuer “BBB” Investment Grade, with a stable outlook, from the financial evaluation agency Fitch Ratings. The rating is higher than the sovereign rating of Romania (“BBB minus” / stable outlook) due to the reduced connections of the company with its main shareholder, the Romanian state, is shown in the Fitch statement.

In the opinion of the financial evaluation agency, the socio-political and financial implications of a hypothetical entry into payment incapacity of Electrica are weak, because such a default should not lead to the interruption of the delivery of the company’s services, due to its strategic character for the economy and society. Such an inability to pay will not affect the financing capacity of Romania, because Electrica operates independently from the state, it is one of the few distribution companies, and its exposure to debt is relatively small.

The Romanian state is the main shareholder of Electrica (48.8 percent of the capital, 49.8 percent of the voting rights), and these links caused Fitch to cap the rating of the company by one step above that of the Romanian state. The Electrica rating is not constrained by the country ceiling of Romania, which is at the “BBB plus” level, says the financial evaluation agency.

Positive rating actions for Electrica can only take place if the credit profile of the company is improved and Romania’s sovereign rating is revised upward. Also, the Electrica rating could be affected in the case of a less predictable regulatory environment, in the event of a debt increase, stronger links with the Government or if the sovereign rating of Romania is revised downwards, Fitch said.

In the case of Romania, the agency mentions developments that could lead, individually or collectively, to positive rating actions: reducing the risks of macroeconomic instability and improving the credibility of the macroeconomic policy, implementing fiscal consolidation to improve the long-term trajectory of public debt as a percentage of GDP and the sustained improvement of external finance.

There are developments that could lead, individually or collectively, to negative rating actions are persistently high fiscal deficits that lead to an increase in government debt as a percentage of GDP, overheating of the economy or a “hard landing”, which undermines macroeconomic stability, or a significant deterioration of the balance of payments.

According to a statement from the company, the BBB rating reflects the solid financial profile of the Electrica Group, the stability of the cash flow, the leading position, both in the distribution area and in the supply of electricity, in the regulated area, as well as the potential to maintain a high level of investments in the coming period.

“In view of the business development opportunities as well as the ambitious investment plan undertaken during the Fourth Regulatory Period, the Electrica Group prospects several variants regarding the diversification of financing sources. In this regard, the Group has decided to apply in order to obtain an issuer rating from one of the three major rating agencies, considering that this is a proof of transparency and, at the same time, a key element in order to obtain financial flexibility. The existence of an issuer rating history, at the time of issuance of bonds or obtaining another source of financing, is beneficial in terms of successfully placing the debts, by accessing in favorable conditions to the market of the loan instruments,” the company representatives said.

The decision to obtain an issuer rating also took into account that credit risk opinions issued by one of the three major rating agencies are used by institutional investors around the world.

“We want to increase the credibility of the Electrica Group in front of our investors, their confidence being extremely important for us. Thus, our goal in the relationship with investors is to be regarded as a transparent company, the rating giving all stakeholders an evaluation that is independent and comparable to similar companies, which are also tracked by rating agencies. Following the rating, our investors will benefit from Fitch’s experience in the process of analyzing and monitoring the public rating of Electrica Group, providing them additional comfort when analyzing a potential increase in investment in Electrica,” said Corina Popescu, Electrica’s CEO.

By listing in 2014, the only privatization with a majority stake in the Romanian capital market, Electrica has managed to attract about two billion lei, funds used responsibly in two major directions: the implementation of an ambitious investment program and mergers and acquisitions opportunities. .

Thus, the Electrica Group has become the largest investor in the modernization and refurbishment of electricity distribution networks, with a total of RON 3.1 billion invested in the last five years.

Another important part of the funds attracted by the initial public offer was used, at the end of 2017, for the purchase of the 22 percent minority packages that the Fondul Proprietatea held in the distribution and supply subsidiaries of the Electrica Group.

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Aurel Dragan | 19/12/2022 | 18:45

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