S&P upgraded the long-term issuer credit rating of dominant power utility HEP to BB+ from BB, with a stable outlook. The rating action follows the agency’s upgrade of Croatia’s sovereign rating to the investment grade BBB- from BB+ on Friday, S&P said, adding that it believed that the government now had stronger capacity to support the state-owned utility if needed. Moreover, S&P believes that there is high probability HEP to receive timely and sufficient extraordinary support from the government if need be. The agency said that the stable outlook reflected that on the sovereign and mirrored its expectation that HEP’s stand-alone performance will be solid. S&P said that a positive rating action on Croatia would result in a similar rating action on HEP. Upside risk on the rating could also stem from a two-notch improvement in HEP’s stand-alone credit profile (SACP), but the agency considers this unlikely. A downgrade of Croatia would result in the agency taking the same action on HEP, S&P said, adding that it did not see major downward pressure on the company’s SACP, or its rating on HEP, over the next 12-18 months. S&P said that assuming no change to its expectation of a high likelihood of state support, it could downgrade HEP if its financial performance deteriorated to such an extent that the agency revised its assessment of its SACP to b+, which is however far from its base-case scenario.
HEP CEO Frane Barbaric commented that the company’s management was exceptionally satisfied with S&P’s rating action, adding that the assessment confirmed its active management of HEP Group’s financial situation and overall business operations.