The credit agency S&P published an updated credit opinion on NEK EAD

NEK Outlook Revised From Stable To Positive By S&P On Improving Credit Metrics

On 12.12.2022 the credit agency S&P Global Ratings revised NEK`s outlook from stable to positive due to improving credit metrics. The long-term credit rating of the company was affirmed at `BB-`.

S&P reports a significant improvement of NEK`s credit profile, which led to increased business results and reduced credit exposure. Moreover, NEK's low-carbon production is of key importance to the company's role in the energy transition process and its excellent positioning in the sector.

The positive outlook on NEK reflects S&P`s expectations that NEK's and BEH's credit quality will benefit from exceptionally strong cash flows over the next two to three years, with improved margins due to the liberalization of the regulated electricity market. In this regard, in 2022 NEK repaid large legacy debt (more than BGN 1 b) to the government.

The rating on NEK continues to depend on BEH's credit quality. S&P views NEK as a highly strategic subsidiary of BEH, given the former's very important role in Bulgaria's energy system as a hydropower producer and supplier of last resort and public supplier of electricity, as well as NEK's transformation from a loss-making operation historically to a contributor of close to 20% of BEH's consolidated EBITDA.

In summary, S&P expects that the performance of NEK will remain robust and notes that NEK`s credit rating could be upgraded in the next six to 12 months if the company`s stand-alone profile improved to 'bb' or the group credit profile improved to 'bb+'. This could stem from Increased stability and predictability of cash flow generation profile, for example with contractual diversification of energy sourcing, demonstration of solid market shares within liberalized markets, and the use of risk management tools such as the hedging of its generation portfolio.

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