Moody’s assigns negative outlook to Czech CEZ after Gasnet takeover
International rating agency Moody’s has affirmed the Baa1 rating and the baa2 Baseline Credit Assessment (BCA) for the Czech majority-state-owned energy utility CEZ. Moody’s also changed the outlook to negative from stable.
Moody’s action comes after CEZ confirmed it had signed an agreement to buy 55.2% of Gasnet, the largest Czech gas distribution company, for €846.5mn from Macquarie Asset Management. The Gasnet acquisition comes amid the efforts of the Czech state to gain a stronger footing in the energy infrastructure and diversification from its dependency on Russian energy supplies.
CEZ confirmed the anticipated transaction after presenting its 2023 results of net profit of CZK29.6bn (€1.17bn) and revenue up 18% to CZK340.6bn.
Moody’s stated that “the acquisition comes with a substantial debt burden as GasNet is heavily indebted” though the rating agency “does not consider the acquisition to be transformative to CEZ’s business profile” and expects that CEZ “will continue to remain heavily exposed to many of the same credit drivers that currently constrain its stand-alone rating”.
“The acquisition of a majority stake in GasNet makes strategic sense as it allows for CEZ to further consolidate its foothold in the domestic Czech energy market […] in a new business line for CEZ (gas distribution),” Moody’s commented, adding “there could be benefits in the future of controlling both electricity and gas networks when capex is to be deployed for the development of hydrogen.”
Local market analysts surveyed by Czech Press Agency (CTK) viewed Moody's move neutrally and agreed that it does not affect the performance of CEZ bonds and stocks. "Moody's rating remains safely in investment degree, CEZ is ranked among very safe bonds", an analyst from Cyrrus consulting, Tomas Pfeiler was quoted as saying by CTK. After 12:00 on March 27, Prague-listed CEZ stock gained by 1.6% to CZK846 per stock.
The Gasnet transaction is subject to approvals by the EU and Czech authorities, and CEZ will use acquisition financing from a syndicate of commercial banks, CTK noted. Gasnet’s existing debt obligation amounts to approximately CZK55bn.
CEZ is also in the process of making an estimated CZK160bn investment in nuclear enhancement, which could be the largest investment in the country’s history. Onetime favourite bidder, the US’s Westinghouse, was ejected from the current round of the nuclear tender.
Shortly before Moody’s rating change, CEZ announced it began the divestment process in Poland, which is part of the company’s decarbonisation strategy.
Divestments are aimed at four companies in Poland – CEZ Skarwin, CEZ Chorzow, CEZ Produkty Energetyczne Polska and CEZ Polska – and are led by ING Bank, Reuters reported, referring to CEZ.
CEZ entered Poland in 2006 with the acquisition of CEZ Skawina and CEZ Chorzow. The coal-fired plants produced a total of 1,390 Gigawatt-hours of electricity and 5,649 terajoules of heat in 2023, Reuters reported.
CEZ is expected to remain active on the Polish market. Last month, CEZ was reported by Polish Puls Biznes and Czech Hospodarske noviny as investing in Polish company Instal Bud Pecyna through its Polish daughter company Euroklimat, which focuses on cooling systems.
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