April 5, 2012 / 2:57 PM / in 6 years

TEXT-Fitch affirms ENEA ratings

(The following statement was released by the rating agency)	
    April 5 - Fitch Ratings has affirmed ENEA S.A.'s (ENEA) Long-term
foreign and local currency Issuer Default Ratings (IDRs) at 'BBB' and National
Long-term rating at 'A(pol)' with Stable Outlooks. 	
	
The affirmation is driven by ENEA's (ENEA group comprising ENEA S.A. and its 	
subsidiaries) stable operating and strong financial performance in FY11 coupled 	
with its leading position in electricity distribution and supply and material 	
position in power generation. 	
	
ENEA's financial profile continues to be strong and was underpinned by a large 	
cash balance at YE11 of PLN2.5bn (PLN3bn at YE10), limited external debt 	
(PLN121m) and recent progress in arranging external financing. The targeted 	
financing mix entails loans granted by international financing institutions with	
long maturities, a long-term bond programme underwritten by a banking consortium	
and operating cash flows generated by the group. Management believes that 	
signing of the loan documentation should be finalised mid-2012 which fits in 	
well with the timing for the selection of a contractor for the 1,000MW new unit 	
at the Kozienice power plant.	
	
Although capex in FY11 of PLN1.2bn was almost two times higher than the average 	
for 2008-2010, the capex spending is increasing at a slower pace compared to 	
ENEA's original plans. Fitch believes that lower capex has slowed an increase in	
financial leverage. However, slower than expected progress in capex 	
implementation may reduce the company's flexibility in terms of capex 	
management. Fitch believes that the accumulation of construction works and 	
related payments in 2013-2014 could be challenging and result in delayed 	
completion of the Kozienice project and postponement of operating cash flows 	
from the new generation unit.	
	
Fitch projects that ENEA's ambitious capex plan will be funded from its large 	
cash balance and new debt that ENEA expects to raise in the next few years. This	
will result in higher financial leverage, which is forecast to remain 	
commensurate with the current ratings in the medium term. The agency notes that 	
FFO adjusted net leverage approaching or exceeding 3.0x could lead to negative 	
rating action. 	
	
Fitch assumed in its projections that additional cash flow in ENEA's generation 	
segment, related to a compensation for the termination of long-term power 	
purchase agreements (PPAs), will be reported only until 2015. According to the 	
PPA Termination Act, the maximum compensation for ENEA's Kozienice power plant 	
is PLN624m.	
	
ENEA's ratings continue to benefit from the high contribution to EBITDA from 	
regulated electricity distribution earnings (40% in FY11), higher than 23% at 	
PGE Polska Grupa Energetyczna S.A. ('BBB+'/Stable), on a par with 42% at Tauron 	
Polska Energia S.A. ('BBB'/Stable) but lower than estimated 60% at Energa S.A. 	
('BBB-'/Stable). ENEA's creditworthiness is still constrained by the group's 	
limited generation fuel mix diversification and high asset concentration, which 	
was slightly mitigated by the acquisition of Elektrocieplownia Bialystok S.A. in	
mid-2011. Lower electricity volumes sold to end-customers in FY11 improved the 	
generation to supply coverage ratio to 84%. This ratio is now substantially 	
higher than that of Tauron or Energa. ENEA also has substantial exposure to 	
carbon dioxide costs, which could result in an erosion of profits from the 	
generation segment beyond 2012. 	
	
ENEA's liquidity was ample at YE11 with PLN2.5bn of cash and a PLN150m fully 	
available revolving credit line against PLN48m of short-term debt. Fitch notes 	
that in FY11 the group implemented tools to manage cash flows within the group 	
more efficiently, which should help raise debt at the holding company level.	
	
 (Caryn Trokie, New York Ratings Unit)

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