Fitch cuts Slovak utility SE to BBB-, outlook negative

By bne IntelliNews July 17, 2013

Fitch Ratings has lowered the long-term Issuer Default Rating (IDR) and senior unsecured rating of Slovakia's dominant power producer Slovenske Elektrarne (SE), 66%-owned by Italy’s energy group Enel, to BBB- from BBB and assigned it a negative outlook.

The global ratings agency said that the downgrade reflects the expected increased capital expenditure and delayed time schedule of the two new units at the Mochovce nuclear power plant as well as weakening electricity market fundamentals in central Europe, which are likely to affect SE's operating cash flow in the coming years.

The construction of the two blocks, designed to have an installed capacity of 880MW, was officially launched on November 3, 2008. Under Enel’s initial plan, the third unit should have been launched at the end of 2012 and the fourth in mid-2013. However, the completion of the two units was delayed by more than two years due to hold-ups associated with stress tests, needed to meet new safety standards after the March 2011 Fukushima disaster in Japan. The reactors are now expected start operating in 2015.

Meanwhile, construction costs have swelled by some EUR 800mn to EUR 3.8bn and Enel is now negotiating with the Slovak government the financing of the extra costs. The Slovak government owns the remaining 34% of SE.

According to Fitch, SE will need up to EUR 1.8bn of external funding during 2013 and 2014 to complete its capex plan and refinance debt maturing in 2014.

Fitch noted that central European power producers suffer from sluggish electricity demand and structural changes in supply, which have led to a decline in wholesale power prices across the region. The agency expects wholesale power prices to remain weak in the next few years, affecting SE’s margins.

SE, the biggest electricity producer in Slovakia and the second biggest in the region of Central and Eastern Europe, operates an installed capacity of 5,737MW at two nuclear power plants, two thermal power plants and 34 hydropower plants. According to Fitch, the composition of SE's generation fleet (43% hydro, 34% nuclear and 23% thermal), the increased operating efficiency of existing power plants, and headcount optimization suggest that the company will remain a low-cost power producer and, after the completion of the new units at Mochovce, also a net exporter of electricity.

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