S&P maintains Enemalta's rating thanks to government support

Ratings agency Standard and Poor's said today it was maintaining Enemalta's rating of  B+ after having downgraded the corporation from BB last February. The outlook is still negative.

In a statement, it said its decision was based on the opinion that there was a very high likelihood that the Maltese government would provide timely and sufficient extraordinary support to the company in the event of financial distress.

Enemalta's stand-alone credit profile was assessed as being 'ccc'.

"We consider Enemalta's business risk profile to be "vulnerable," reflecting its poor profitability, high cost and old generation portfolio based mainly on fuel oil, exposure to oil prices, and lack of timely cost-reflective adjustments in the tariffs it is allowed to charge consumers. The tariffs weigh significantly on our view of the company's credit profile, especially in the current high oil price environment," the agency said.

The rating decision was announced hours after the corporation said it was satisfied with the efficiency rate of the power station extension which in tests since May has saved it €10m in fuel costs. Yesterday a spokesman for the corporation also told PBS that the commissioning of the inerconnector could cut dependence on fuel by almost a third.

S&P said it had expected the refinancing of the current portion of Enemalta's debt to be executed in the first half of this year.

"But we now understand the Maltese parliament has not yet initiated the debate on setting up the proposed special purpose vehicle that we believe is instrumental to completing the transaction. As a consequence, we now expect the transaction to be executed by the end of 2012 as any further delay would suggest, in our opinion, that the government is struggling to address the much-needed financial restructuring of the company.

"Although we acknowledge that the government intends to assume a share of Enemalta's 2012 costs in the state budget, we believe this will only serve as a temporary solution and not properly address the restoration of the company's profitability. In addition, given the already high energy costs in Malta, we think that any move towards a cost reflective tariff could be considered a risk for the local economy," the agency said.

(A motion for the creation of the special purpose vehicle is currently on the agenda of the House).

€60M LOSS THIS YEAR

S&P said its base-case scenario forecasts that Enemalta will post losses of around €60 million this year, based on a double-digit year-on-year increase in the cost of oil-based commodities which the company is not allowed to pass on to consumers. The government, however, is assuming €25 million of Enemalta's costs, which will bring the loss down to €35 million.

S&P said Enemalta's stand-alone liquidity was "less than adequate" but the government was expected to fill any liquidity gaps that might arise.