S&P affirmed on Friday the rating of domestic power utility CEZ at A- with Stable outlook. The agency said that despite its expectations of slightly lower-than-anticipated revenues and EBITDA as of 2018 following the fall in power prices in Czech Republic, CEZ would be able to maintain funds from operations to debt above its 25% guideline. Such positive development would be thanks to the utility’s supportive hedging policy, which would allow some of the price decline in the next two to three years to be mitigated. Moreover, CEZ also benefits from low-risk, regulated distribution network businesses, which represented about 26% of EBITDA in 2014, S&P said. Last but not least, the agency expects the group to maintain its relatively prudent financial policy, including its focus on free cash flow generation.
S&P said that downward pressure on CEZ’s stand-alone credit profile (SACP) could result from even weaker power prices and electricity generation spreads than forecasted at present, free carbon dioxide allowances unexpectedly not granted by the government, or any large-scale acquisitions. Yet, potential one-level downward revision of CEZ’s SACP would not affect the agency’s long-term rating on CEZ, S&P concluded.
Earlier this month Moody’s placed CEZ’s A3 senior unsecured ratings on review for downgrade due to the utility’s exposure to a weakening power price environment. Moody’s said it could confirm CEZ’s ratings if the adverse effect of lower power prices was adequately mitigated so that CEZ maintained a financial profile in line with Moody’s guidance. A negative rating action, up to one notch, could come if CEZ proved unable to offset the impact of lower power prices using mitigating measures to create adequate financial headroom.