Moody's assigns Baa1 rating to Slovak Eustream's EUR 500mn 7-year bond

By bne IntelliNews July 22, 2013

Moody's Investors Service has assigned a Baa1 rating to the EUR 500mn 7-year bond of Slovakia's gas transmission system operator Eustream, a unit of the country’s dominant gas utility Slovensky Plynarensky Priemysel (SPP). The bonds, which carry a coupon of 3.75% and mature in 2020, are issued by SPP Infrastructure Financing B.V. and unconditionally and irrevocably guaranteed by Eustream.

Moody’s noted that the rating reflects Eustream's strategic importance as a major gas transit route in Europe, the high profitability of the company's transit activities, the low risk of Eustream's domestic transmission activities, and the low capital maintenance requirements associated with the current infrastructure. On the negative side, the rating reflects the renewal risk of ship-or-pay contracts given rising competition and a shift in traditional gas flows in Europe, Eustream's material concentration in terms of its exposure to a single shipper (Russia’s Gazprom), the expected increase in the company's leverage, and the overall credit quality of SPP group. Moody's lowered last month SPP’s rating to Baa1 from A2 on expectations that the group's leverage will increase as shareholders seek to maximise the dividends they receive.

With a total capacity of 90 billion cubic metres of its pipeline network, Eustream is the largest transit carrier of Russian natural gas into western and southern Europe. It derives the majority of its transmission revenues from long-term ship-or-pay contracts, which provide good visibility on the company's future cash flow generation, as capacity payments under existing long-term contracts are linked to inflation, whereas new contracts, including those for domestic transmission, are subject to regulatory approvals.

Moody’s has assigned a negative outlook on the ratings due to uncertainty regarding a proposed restructuring of the SPP group and its impact on the group's corporate and debt structure. The Slovak government has been exploring the opportunity to acquire 100% of the parent gas company by end-2013 in a bid to gain full control over gas prices for households. In that case, Czech energy group Energeticky a Prumyslovy Holding (EPH), which bought in January a 49% stake in SPP from Germany's E.ON Ruhrgas and France's GDF Suez for EUR 2.6bn, would keep a 49% stake and a managerial control over SPP's two independent gas distribution units, Eustream and SPP Distribucia, which make up the bulk of its business.

Moody's noted that given the current negative outlook, an upgrade is unlikely at this stage, while a downgrade could come in case of a deterioration of the credit quality of SPP or Gazprom, or if Eustream fails to secure new contracts over the medium to long term, which would lead to very high contract concentration.

Eustream transported 56 billion cubic metres of gas through 2,260 km of pipelines in 2012. The company awaits a certification process as an independent transmission operator following the transfer of the transmission assets from SPP in February 2013.

Fitch assigned last week an A- rating on Eustream's bond.

Related Articles

Latvia issues permits to new gas infrastructure holding

The Latvian Public Utilities Commission (SPRK) announced on January 5 that it has issued licences to Conexus Baltic Grid for the transmission and storage of gas. Conexus Baltic Grid will control ... more

Iran to seek arbitration over termination of gas flow from Turkmenistan

The National Iranian Gas Company (NIGC) intends to take its recent gas dispute with Turkmenistan to international arbitration, Mehr News Agency reported on January 4, citing ... more

CEZ ignores Czech finance minister and re-elects CEO

The supervisory board at Czech power group CEZ ignored pressure from the finance ministry to dump the current management, local media report. Finance Minister Andrej Babis has been accumulating ... more

Register here to continue reading this article and 2 more for free or purchase 12 months full website access including the bne Magazine for just $119/year.

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

Thank you. Please complete your registration by confirming your email address.
A confirmation email has been sent to the email address you provided.

To continue viewing our content you need to complete the registration process.

Please look for an email that was sent to with the subject line "Confirmation bne IntelliNews access". This email will have instructions on how to complete registration process. Please check in your "Junk" folder in case this communication was misdirected in your email system.

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

If you have any questions please contact us at sales@intellinews.com

Subscribe to bne IntelliNews website and magazine

Subscribe to bne IntelliNews website and monthly magazine, the leading source of business, economic and financial news and commentary in emerging markets.

Your subscription includes:
  • Full access to the bne content daily news and features on the website
  • Newsletters direct to your mailbox
  • Print and digital subscription to the monthly bne magazine
  • Digital subscription to the weekly bne newspaper

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

bne IntelliNews
$119 per year

All prices are in US dollars net of applicable taxes.

If you have any questions please contact us at sales@intellinews.com

Register for free to read bne IntelliNews Magazine. You'll receive a free digital subscription.

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

Thank you. Please complete your registration by confirming your email address.
A confirmation email has been sent to the email address you provided.

IntelliNews Pro offers daily news updates delivered to your inbox and in-depth data reports.
Get the emerging markets newswire that financial professionals trust.

"No day starts for my team without IntelliNews Pro" — UBS

Thank-you for requesting an IntelliNews Pro trial. Our team will be in contact with you shortly.

Dismiss