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From Bulgaria
17.09.2015 11:35
© naezmi, flickr.com
Fitch Ratings has downgraded Bulgarian Energy Holding EAD's (BEH) Long-term foreign and local currency Issuer Default Ratings (IDR) and its foreign currency senior unsecured rating to 'BB-'. The outlook has been set to “Negative”, the Bulgarian Energy Holding announced on its website Thursday.
The rating downgrade reflects the rating agency’s expectations that BEH’s credit ratios will be weaker in 2015- 2016, until the full effect of the positive legislative and regulatory changes is achieved. The rating downgrade is limited due to expected improvement in funds from operations in 2015-2016 from very low 2014 level driven by a reduction of the tariff deficit of BEH’s subsidiary Natsionalna Elektricheska Kompania EAD (NEK) as a result of the legislative changes implemented in 2015, the new regulatory decision in force as of 1 August 2015 and the expected entry into force of the renegotiated terms of NEK’s long-term power purchase agreements (PPAs) with two thermal power plants, AES-3C Maritsa East 1 EOOD and Contour Global Maritsa East 3 AD.
In assigning the rating the important position of BEH group on the electricity and gas markets in the country has been taken into account and the fact that BEH EAD preserves the positive effect of its capital structure of a hundred per cent state ownership. Fitch Ratings expects that the State will support BEH EAD in case of potential liquidity difficulties.
The Negative Outlook incorporates the expected higher net leverage by 2016 given the company’s plans to raise new debt financing without a state guarantee for the purpose of paying its trade payables to the thermal power plants AES-3C Maritsa East 1 EOOD and Contour Global Maritsa East 3 AD and achieving the negotiated decrease in their capacity tariffs.
The rating agency views the Bulgarian regulatory environment as less predictable than in Western Europe and notes the political risk in the tariff framework. Nevertheless, Fitch Ratings acknowledges the progress made and the implemented legislative and regulatory changes during 2015, which will prevent the formation of new deficits in NEK and will give the company the ability to break-even.
In terms of future developments that could lead to a positive rating action (revision of the outlook), the rating agency points to improvement in the liquidity position, tangible new government support, decrease in net leverage and longer track record of a shrinking tariff deficit at NEK . Fitch Ratings’ view is that the provision of state guarantees in case of raising new debt would prevent a further downgrade.
Note is taken of the potential positive effect of the liberalisation process of the electricity market through a rising share of market-based pricing in the generation sector.
The speed and scale of the full positive effect of the introduced legislative and regulatory changes and the entry into force of the renegotiated terms of the long term power purchase agreements of NEK will have a positive effect for the rating.
Мore information at www.fitchratings.com.
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