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From Bulgaria
20.02.2014 10:41
© NEK
Standard & Poor’s announced on February 18, that it lowers the long-term corporate credit rating on the Bulgarian 100% state-owned electricity utility Natsionalna Elektricheska Kompania EAD (NEK) to 'B+' from 'BB-'. NEK is a subsidiary of the 100% state-owned holding company Bulgarian Energy Holding (BEH). The outlook on NEK is negative.
According to the announcement, the downgrade follows the steep deterioration in NEK’s credit metrics in 2013, which has mainly been due to adverse regulatory tariff decisions. As an example, the rating agency cites that NEK has not been able to fully recover its disbursements for preferential subsidies to renewable and combined heat and power generators (CHP). Bulgaria subsidizes RES through feed-in tariffs. Another reason for the rating degrading is that NEK was not able to recover about 215 million BGN of costs incurred under its long-term power purchase agreements with large coal TPPs, amid excess supply in the Bulgarian electricity system. S&P also estimates that the external debts of NEK have diminished to 100 million EUR, and the loans from BEH amount to 960 million BGN.
Among the risks analyzed, the agency mentiones the the company’s meager profitability and the regulatory uncertainty of annual tariff resets by the Bulgarian State Energy and Water Regulatory Commission. Also, the business risk factors in uncertainty related to the Belene NPP project, which is on hold. Any commitment to commence construction, particularly without any direct government support, could alter the view of S&P on the business and financial risk profiles of NEK. According to the message, these negative factors are partly mitigated by NEK’s dominant market position; its strategic importance as provider of an essential public service; and its ownership of almost all of the low-cost hydro generation assets in Bulgaria.
The agency also states that the negative outlook reflects the uncertainty as to whether BEH will continue its strong financial commitment and capacity to support NEK for the foreseeable future. The outlook may be revised if the agency believes that NEK’s financial risk profile has stabilized.
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