Croatia: Moody’s has improved prognosis for rating of HEP power utility company

10. December 2013. / SEE Energy News

Moody’s affirmed today the current rating of Croatian Electric Power (HEP) Ba2 and improved prognosis of ‘negative’ to ‘stable’ rating thanks to the measures taken to improve liquidity. The agency allocated implementation of a series of medium-term standby credit arrangements where the HEP gained “a better overview of the financing and the ability to withstand a possible long-term closure of the market,” the statement said.

HEP has so far relied on credit lines with maturities of up to one year, but this policy has led to the long period of poor precipitations in 2012, overstraining cash flow of the company and its liquidity capacity, pointed Moody’s.

Revised regulatory provisions on privileged tariffs for electricity and heating are further backed the HEP’s credit profile as well as improved hydrological conditions of the last quarter of 2012, according to Moody’s.

These conditions enabled HEP to rely more on their own cheap production capabilities and less on relatively expensive imported electricity, they explain.

The improvement is reflected in this year’s financial results and operating cash flow in the first half of the year amounted to 1.3 billion kunas, compared to 196 million kunas in the same period of 2012, they notice in the agency.

Due to higher precipitation amount liquidity has improved and HEP was able to restore most of the short term loans from cash generated, they conclude.

HEP’s rating could be upgraded if their operating results and cash flows stabilize, which could eventually be achieved by continuing changes in the regulatory environment, they stress.

Among the factors that could adversely affect the rating in Moody’s, they stand out “a number of factors beyond the control of management, especially amount of precipitation, the exchange rate of the domestic currency against the euro and commodity prices and electricity in the region.”

They also point to the possibility of a significant decrease in market share associated with the liberalization of the market in Croatia.

Source; Serbia Energy See desk

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