Rating agency Moody’s has changed the outlook on Croatian power utility HEP to positive from stable. This follows a change in outlook on the Baa2 long-term rating of the Croatian government to positive from stable.
HEP’s Baa2 long-term issuer ratings and the baa3 Baseline Credit Assessment have been affirmed. The statement from the agency said that the outlook change to positive reflects the strong linkages between the rating of HEP and the sovereign credit quality given the 100% ownership of HEP by the government and HEP’s dominant position in the Croatian electricity market.
A stronger credit profile of the Government, and the Government’s continued strong support for HEP in the context of the implemented price caps for gas and electricity and its strategic role in pursuing national energy policies, could result in an increase of the uplift to HEP’s BCA of baa3 to two notches from one notch currently.
HEP’s financial profile is weak, but likely to strengthen once the price cap is lifted.
Moody’s view of high support is underpinned by a parliamentary decision taken in March to grant the company extraordinary financial support. Such financial support included a shareholder loan with an aggregate amount of 400 million euros, of which 265 million euros were paid to HEP at signing whilst the second tranche of 135 million euros was disbursed in July 2023. An additional equity injection with a maximum amount of 500 million euros remains available for HEP if additional support is required. This is in addition to the support provided to HEP in July 2022, when the Government approved a combined 88% state guarantee for two loans to the utility for an aggregate amount of 1 billion euros, and further evidences the strategic importance of the state-owned company.
