Rating agency Moody’s affirmed the Baa2 long-term issuer ratings of Croatian state-owned power utility and downgraded to baa3 from baa2 the Baseline Credit Assessment (BCA), as the outlook remains stable.
Agency said that the rating action reflects Moody’s view that HEP’s lower BCA, arising from the company’s exposure to adverse regulatory developments, is offset by a high probability of support from the company’s shareholder – the Government of Croatia. The downgrade of the BCA reflects Moody’s view that HEP’s risk profile has increased as a result of adverse regulatory and political developments driven by social considerations.
In March, the Croatian Government announced a fourth package of measures to protect households and the economy from high energy prices. It included the extension of a cap on end-consumer electricity prices until 30 September. According to Moody’s, this is credit negative for HEP because the company has a structurally short-generation position. It, therefore, needs to procure on the wholesale market at a higher price the electricity volumes in excess of its power generation that are required to supply its customer base.
The extension of the price cap also evidences the government’s use of HEP as an instrument to deliver social policies, which include tackling energy affordability.
