Moody’s reports stable outlook for EMEA electric, gas utilities

The outlook for the EMEA electric and gas utilities sector is stable, reflecting the companies' strong fundamentals and ability to generate cash flow, Moody's Investors Service said in a new report. The stable outlook also reflects the companies' flexible approach to planned investment programmes to help maintain their ratings.
"Moody's believes most European utilities' earnings and cash flows should remain relatively resilient over this period, even as the economic downturn takes hold in many of their markets," said Monica Merli, Managing Director in Moody's Infrastructure Finance Group. Indeed, utilities' earnings, cash flows and financial profiles are expected to be underpinned by resilient demand, locked-in prices and the ability to trim capex budgets.
Moody's believes large capex programmes remain a key ratings driver for the utilities companies, as many need to maintain and upgrade their ageing networks and diversify generation capacity. "However, Moody's does expect that some companies will examine their required returns more critically, given the ongoing tight credit markets and weakening economies," Merli added.
In Moody's view, the impact from rising political risk is likely to be moderated by security of supply considerations and the importance of supporting infrastructure investments during an economic downturn. "In any event, Moody's already factors in a higher degree of regulatory and political risk into its ratings for companies in more sensitive areas, like Central and Eastern Europe," explained Merli. "But Moody's will continue to monitor for rating impact in case these risks translate into a more onerous burden for companies."
Overall, Moody's views the liquidity profile of rated EMEA utilities as sound.
"While it may gradually erode over the coming year under pressure from tougher economic conditions and financial markets, Moody's still expects it to remain adequate," Merli said.
Moody's currently rates 71 utilities corporate families in the EMEA electric and gas utilities sector, some of which are groups where there are multiple subsidiary ratings within.