Fitch Ratings has affirmed Bulgarian Energy Holding’s (BEH) senior unsecured debt, including 550 million euros (due 2021) and 600 million euros (due 2025) bonds, at BB-. Fitch Ratings has affirmed BEH’s long-term foreign- and local-currency Issuer Default Ratings (IDR) at BB with a stable outlook.
The IDR of BEH reflects its standalone credit profile (SCP) of b+, which is notched up twice for strong links with its sole owner, the Bulgarian state (BBB/Stable) to arrive at the BB IDR. The senior unsecured rating, which is notched down once from the IDR, reflects a high share of debt at subsidiaries resulting in structural subordination of bondholders at the BEH level.
BEH is the largest utility in Bulgaria and has an integrated business profile. In 2019 the group generated 26 TWh of electricity, of which 65 % was from nuclear (NPP Kozloduy), 26 % from lignite (TPP Maritsa East 2) and 9 % from hydro power plants (NEK), leading to a low carbon exposure. Beyond generation the group is active in more stable electricity transmission (ESO) and gas transmission and transit (Bulgartransgaz), which contributed 30 % to the group’s reported EBITDA in 2019, supporting its credit profile. BEH is present also in electricity and gas supply (NEK and Bulgargaz, respectively), excavates lignite (Mini Maritsa) and indirectly controls a telecom business (Bulgartel).
BEH’s main investment, under construction since 2019 by fully owned Bulgartransgaz, is the expansion of the gas transmission and transit infrastructure between the Bulgarian-Turkish and the Bulgarian-Serbian borders (Balkan Stream). The project is of strategic importance for Bulgaria by contributing to the diversification of gas-supply routes. Since completion of the project’s first stage in Q4 2019, Bulgaria has begun importing Russian gas from Turkey instead of the traditional route via Ukraine. The output capacity at the Serbian border (14 vs. 19 billion cubic meters input at the Turkish border) will allow, upon completion in 2021, for gas transit to Serbia and further to Hungary and Austria. The second large investment is the construction of a gas interconnector between Greece and Bulgaria (IGB). It will have a capacity of 3 billion cubic meters (extendable to 5 billion cubic meters) and should become operational in 2021.
Fitch deems the Bulgarian regulatory framework as more volatile and higher-risk than for BEH’s peers in the EU. However, it has been evolving with notable success, e.g. reduction of the tariff deficit at NEK and reflection of higher CO2 prices in regulated tariffs at TPP Maritsa East 2. The electricity market has also become more liberalized. The electricity market was 67 % liberalized at end-2019 (vs. 33 % regulated). The Bulgarian Government plans to achieve full liberalization of the wholesale segment by mid-2021 and of the retail segment in the following years (non-households are unregulated since October 2020). This should have a positive impact on BEH’s SCP over time.