Insolvent Hidroelectrica hits Romania's rating, says Moody's

The insolvency of state-owned power generator Hidroelectrica “reflects negatively” on Romania’s credit profile, as the government may have to pay some of the company’s debt, in the same time delaying its stock exchange listing, warns rating agency Moody’s in the weekly credit outlook published by SeeNews.

Moody’s said the sudden filing for insolvency of Hidroelectrica sets a precedent that creates uncertainty among creditors of Romanian state owned enterprises. Around USD 70 million of Hidroelectrica’s debt is guaranteed by the government, but the total debt of around USD 725 million is a contingent liability for the government if it decides to extend credit support for the company during the insolvency, warns Moody’s. Hidroelectrica has to pay loans amounting to RON 2.15 billion (EUR 470 million).

The rating agency said the insolvency filing is also delaying the government’s plan to sell a 10 percent in Hidroelectrica that should be carried out in October and is valued close to EUR 400 million.

Hidroelectrica is part of the privatization program, under the EUR 5 billion stand-by agreement signed by Romania with the IMF, European Commisison and World Bank.

The poor market conditions put the brakes on Romania’s ambitious program to sell minority stakes in energy companies, resulting in EUR 1 billion revenues for the companies and the governemnt. In the year to date, the government got EUR 37.6 million from the secondary public offering of grid operator Transelectrica.

Moody’s said the delay shows Romania’s operating environment uncertainty, which may diminish the market’s perception of future privatizations.

Hidroelectrica’s rating was cut by 4 notches by Moody’s last week to B2, in the speculative grade, due to the filing insolvency, and may be further downgraded. Moody’s said Hidroelectrica’s credit profile was hit by lower electricity output due to drought and the ongoing long-term electricity sales contracts that are investigated by the European Commission and the Competition Council.

The insolvency raises default risk and is credit negative for Hidroelectrica, which hasn’t established yet how the debt repayments will be made to multilateral development banks and private commercial banks, according to Moody’s.

Ovidiu Posirca