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Nov 20, 2023 11:33 EEST
November 20 (SeeNews) - Moody's Investors Service said it has changed to positive from stable the outlook on Croatian state-owned electricity company Hrvatska Elektroprivreda (HEP).
The action follows Moody's change in outlook on the Baa2 long-term rating of the Croatian government to positive from stable, it said in a press release last week.
Concurrently, the Baa2 long-term issuer ratings and the baa3 Baseline Credit Assessment ("BCA") have been affirmed.
The outlook change to positive reflects the strong linkages between the rating of HEP and the sovereign credit quality given the 100% ownership of HEP by the Croatian government and HEP's dominant position in the country's electricity market. Moody's said.
A stronger credit profile of the government, and the government's continued strong support for HEP in the context of the implemented price caps for gas and electricity and its strategic role in pursuing national energy policies, could result in an increase of the uplift to HEP's BCA of baa3 to two notches from one notch currently, it added. According to the ratings agency, HEP's financial profile is weak, but likely to strengthen once the price cap is lifted.
Moody's view of high support is underpinned by a parliamentary decision taken in March to grant the company extraordinary financial support. Such financial support included a shareholder loan with an aggregate amount of 400 million euro ($438 million), of which 265 million euro were paid to HEP at signing whilst the second tranche of 135 million euro was disbursed in July 2023.
An additional equity injection with a maximum amount of 500 million euro remains available for HEP, if additional support would be required. This is in addition to the support provided to HEP in July 2022, when the government approved a combined 88% state guarantee for two loans to the utility for an aggregate amount of 1.0 billion euro, and further evidences the strategic importance of the state-owned company.
At the same time, HEP's BCA remains under pressure as a result of adverse regulatory and political developments driven by social considerations. In September, the government announced a fifth package of measures to protect households and the economy from high energy prices, which included another extension of the price cap on end-consumer electricity prices until end-March 2024 – a six month prolongation compared to the previous price cap termination date. This is negative for HEP's profitability because the company has a structurally short generation position. It therefore needs to procure on the wholesale market at a higher price the electricity volumes in excess of its own power generation that are required to supply its customer base. Accordingly, Moody's believes that HEP is likely to record another operating loss in 2023, notwithstanding strong hydropower production this year, after ending 2022 with an operating loss of around 881 million euro following the initial implementation of the price cap in the fourth quarter 2022.
($ = 0.915 euro)
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