Fitch affirms Czech energy group CEZ at A- but says it may review ratings on more aggressive dividend policy

By bne IntelliNews April 18, 2014

Fitch Ratings has affirmed the long-term foreign currency Issuer Default Rating (IDR) of the largest Czech energy producer CEZ at A-, with a stable outlook, and its short-term foreign currency IDR at F2 citing the company’s prudent financial policy amid a challenging environment, the ratings agency said in a statement. Fitch has also affirmed CEZ's foreign currency senior unsecured rating at A-.

Fitch said it expects CEZ’s funds from operations to decrease in both 2014 and 2015 mainly as a result of falling power prices but this will be offset by lower capital investments. The ratings agency assesses positively CEZ’s decision to scrap an up to CZK 300bn (EUR 11bn) tender to expand its nuclear power plant Temelin. The company decided on April 10 to cancel the tender citing low power prices and the government’s refusal to provide guarantees on the purchase price of electricity from the two new units.

Without the investments for the new nuclear capacity Fitch forecasts CEZ's free cash from dividends to turn positive from 2015.

Yet, the ratings agency cautioned that it may review CEZ ratings if the company adopts a more aggressive dividend policy. CEZ usually pays between 50% to 60% of earnings to shareholders but finance minister Andrej Babis has proposed the company to distribute its full-2013 profit in dividends. CEZ is nearly 70% owned by state.

At the moment Fitch sees as limited the option for raising CEZ's ratings. Still, an upward revision may be triggered by stronger business risk profile due to a significantly higher share or regulated and quasi-regulated businesses in EBITDA.

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