Fitch downgrades Electrica to 'BBB-'; maintains negative outlook

Fitch Ratings has downgraded Electrica SA's Long-Term Issuer Default Rating (IDR) to 'BBB-' from 'BBB' and maintained the Negative Outlook, a release from the financial assessment agency informs, Agerpres reports.

The Standalone Credit Profile (SCP) of Electrica has also been revised to 'bbb-' from 'bbb'.

''The rating actions reflect Electrica's extremely weak performance in 2021, due to abnormally high energy procurement costs needed to cover its unhedged supply position and significant network losses,'' Fitch says.

The Negative Outlook reflects Fitch's expectation of persistently weak (or negative) funds from operations (FFO) generation and weak liquidity level.

The extremely negative performance in Q4 2021, the negative funds from operations (FFO) in 2021 and a significant net debt increase to 1.1 billion RON from 0.4 billion RON in 2020 shows the large impact of the current market on Electrica. A steep increase in energy prices sharply raised the procurement costs of the unhedged portion of its supply business and the costs needed to cover the large network losses, which account for around 9%-10% of distributed energy (around 2.1 TWh).

Fitch warns that the difficulties facing Electrica will persist in 2022.

''We do not expect energy prices to ease in 2022 while both supply and distribution are likely to suffer even larger negative pressure. We expect Electrica will have to buy electricity in the spot market to cover the network losses of the year while its supply activity will be hit by the continuation of the supply cap mechanism.''

Fitch has revised Electrica's SCP to 'bbb-' from 'bbb' , which places the company's Long-Term IDR at the same level as the Romanian sovereign rating. Due to the negative outlook, an upward revision of Electrica's rating is unlikely, Fitch reports.

The agency could improve Electrica's outlook to stable if financial performance returns to normal and debt levels fall.

Further deterioration in business and the market and / or a greater-than-expected impact on the generation of FFOs due to political or regulatory interventions, as well as a downward revision of Romania's sovereign rating could lead to a downgrade in the rating for Electrica, Fitch warns.