Rating agency Standard & Poor’s (S&P) said that it has affirmed its long-term issuer credit rating of state-owned National Electricity Company (NEK) at BB- and has revised its outlook to positive from stable.
NEK said in a press release that the reason for the outlook revision is the noticeable improvement in credit metrics, reduced credit exposure and strong standalone financial results, and is a prelude to a potential upwards rating review.
In the next two to three years, the planned electricity market liberalization in Bulgaria is expected to enhance the creditworthiness of NEK and its parent company Bulgarian Energy Holding (BEH). The liberalization will also help cut legacy debt, a process which is already underway with NEK having repaid over 510 million euros of accrued liabilities to the state.
The company’s credit rating continues to depend on its parent company’s credit quality. NEK is viewed as a strategically important subsidiary of BEH, given its highly important role in Bulgaria’s energy system as a hydropower producer as well as NEK’s transformation from a historically loss- making business to a contributor of nearly 20 % of BEH’s gross profit.
S&P expects NEK’s financial performance to remain resilient. The agency could consider a positive rating action in the next 6 to 12 months in the event that NEK’s standalone credit profile improves to bb or the group’s credit profile improves to bb+. The company’s standalone could improve through the increased stability and predictability of cash flows stemming from the diversification of energy supplies as well as through the preservation of a sustainable share of the liberalized energy market and the implementation of risk management tools such as production portfolio hedging.
NEK recorded a net profit in the amount of 420 million euros in the first nine months of 2022, compared to a profit of 142 million euros in the same period last year, due to increased electricity prices. The increase in profit is caused by a 93 % increase in revenues from electricity sales, which reached 1.58 billion euros in the January- September 2022 period. The company’s total revenues increased by 48 % year-on-year to 2.02 billion euros, while its expenditures also increased to 1.6 billion euros in the first nine months of the year from last year’s 1.24 billion euros.
In the first nine months of 2022, NEK purchased 10.7 million MWh of electricity, 0.2 % more than in the same period of 2021. The total amount of electricity purchased under long-term contracts or at preferential prices increased by 20.1 % year-on -year to 7.25 million MWh in said period.