Energy, Estonia, Investments, Rating

"Today's upgrade reflects Moody’s expectation that Elering will maintain a conservative financial profile despite the recent acquisition of Estonia's gas transmission system operator and the capital expenditure requirements of both the electricity and gas transmission networks, supported by equity injections from its owner if necessary," Moody’s said. "The upgrade further reflects the supportive nature of the regulatory framework as evidenced by its provision of appropriate incentives and returns that have allowed the company to manage its past significant capital expenditure programme within a risk profile commensurate with an A2 rating," it added.

Moody’s expects that Elering will maintain a net debt to regulatory asset base (RAB) ratio of less than 60% and FFO/net debt at least in the mid teens (in percentage terms), which is commensurate with a baseline credit assessment of baa1.

Elering falls under Moody’s rating methodology for Government-Related Issuers (GRIs) given its 100% ownership by the Government of Estonia (A1 stable). The A2 rating incorporates a two-notch uplift to the group's standalone credit quality, expressed by Moody’s as a baseline credit assessment of baa1.

Moody’s said that Elering's rating is underpinned by the low business risk profile of its regulated transmission network operations; the supportive regulatory framework, which provides for visibility of cash flows, albeit under a less prescriptive system of tariff calculation and application than seen elsewhere in Europe, and a conservative financial risk profile. However, the rating is negatively impacted by the company's small scale and continued challenges of integrating Estonia into the wider European energy transmission system.

The two-notch uplift applied to the standalone credit assessment is explained by the strategic importance of the company to the country of Estonia. Given the 100% ownership by the state and the credit quality of Estonia, we consider there to be high likelihood of extraordinary support from the government, in case of financial distress at the company, Moody’s said.

The outlook on Elering's ratings is stable, and reflects Moody’s expectation that Elering will exhibit a financial profile commensurate with the current rating and that the company will continue to prudently manage its liquidity position.