Eesti Energia’s credit rating downgraded, further outlook for the rating is stable

The rating agency Standard & Poor’s (S&P) downgraded the credit rating of Eesti Energia from BBB+ to BBB. The main reasons for this downgrade are lower sale prices on the electricity and liquid fuel markets. The outlook for Eesti Energia’s credit rating remained stable.

“At the end of 2014, oil prices dropped by about 50% and the price of electricity on the Nord Pool Spot wholesale market has reached a historically low level this year,” said Andri Avila, Financial Director of Eesti Energia. He added that while the low prices are beneficial for consumers, they make the situation more complex for energy companies, which can also be expressed by a lower credit rating. “In the current rather difficult conditions, flexibility is very important, and the strategy for the co- production of oil and electricity in Eesti Energia will give us just that,” Avila noted.

The rating agency remarked that the debt burden of Eesti Energia has increased in relation to the Auvere power plant, which will be completed this year, and the construction of the Enefit280 oil plant. S&P assesses the financial risk of the company as being higher in a situation where the profitability of the group may decrease due to low energy prices, but the level of indebtedness will not significantly change. “The large-scale investment projects by Eesti Energia have reached the final stages: from the Auvere power plant, electricity has already been put to use and with the new oil plant, we have produced and sold a record amount of liquid fuel regardless of the low prices,” Andri Avila said.

“These two investments are of key importance when bearing in mind the competitiveness of the group on energy markets. In the Auvere power plant, it is possible for us to use biomass as fuel to the extent of 50%, reducing the CO2 emissions in the production of electricity. The increase in the production capacity of liquid fuels allows us to produce energy from oil shale at a rate that is almost two times as efficient, and be flexible on the volatile energy markets,” Avila added. At the same time, the funds for the investments decided upon by the group will be significantly reduced in the years to come.

A lower credit rating generally makes involvement of funding from outside a company more expensive. But as the investment programme of Eesti Energia is about to be completed and funding has been guaranteed, the group is not planning to involve additional debt financing.

S&P points out the group’s strong ability to use both the regional banking market and the international bond market for funding its debt. The agency also notes the support given by the Estonian state as a strong owner of the group. The S&P last changed the rating of Eesti Energia in 2010.

Eesti Energia has had credit ratings from the international rating agencies Standard & Poor’s, and Moody’s since 2002. The current credit rating by Moody’s is Baa2, which equals BBB by Standard&Poor’s. Both credit ratings have a stable outlook.