S&P Revises Croatian Electricity Firm HEP Outlook to Negative, Affirms LT Credit Rating at BBB

The agency affirmed its 'BBB' long-term corporate credit rating.

The outlook was revised in response to Monday’s rating action on Croatia (foreign currency, BBB/Negative/A-3; local currency, BBB+/Negative/A-2), Standard & Poor's said in a statement.

"The negative outlook reflects the outlook on the Republic of Croatia and the possibility that the risks of withdrawal of external financing and/or significant crisis in the financial sector could lead to the sovereign downgrade," Standard & Poor's credit analyst Tania Tsoneva said in the statement.

The rating agency said its assessment of HEP's stand-alone credit quality is 'BB+', with a two-notch uplift for extraordinary support by the sole owner Croatian government.

It added that the ratings continue to reflect the government support, the company's strong market position as a monopoly supplier to a growing market, and its moderate leverage to date.

Among the weaknesses Standard & Poor's lists a weak liquidity position, the yet-to-be-tested cost-plus tariff mechanism, the risk of political influence, significant operational challenges, and a planned capital expenditure programme that is large and partly debt-funded.

"A further weakening of HEP's financial profile resulting from delayed or insufficient tariff increases, a potential sector restructuring, further delayed operating improvements, or an inability to commission new generation projects could also have a negative rating effect," Standard & Poor's said.

HEP (www.hep.hr) generates electricity from water and thermal sources, imports and transmits electricity. So far, HEP has issued only bonds but not shares.