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06 Apr 2011
London, 06 April 2011 -- Moody's has today downgraded the rating of Redes Energeticas Nacionais,
SGPS, S.A. ("REN") to Baa2 from Baa1. The rating
remains under review for possible further downgrade.
Today's rating action follows Moody's earlier downgrade of the rating
of the government of the Republic of Portugal ("RoP") to Baa1 from A3
(negative outlook). The Baa1 and (P) Prime-2 ratings of
the RoP remain under review for further possible downgrade. Moody's
rating action on the RoP was driven by the following: (i) the uncertain
political outlook, following the resignation of the government after
the rejection by the parliament of the additional budget measures announced
on 11 March and resulting reduction in the speed and decisiveness of policy
making; (ii) the short- and medium-term funding challenges,
set in the context of the recently agreed European Stability Mechanism
(ESM), which contemplates debt restructuring as a distinct possibility;
and (iii) the medium-term implications of last-week's
revisions to the estimates for the budget deficit and outstanding government
debt for fiscal consolidation.
More particularly, the downgrade of REN's rating to Baa2 reflects
Moody's view that the recent deterioration of the financial environment
is likely to have an adverse effect on REN's funding costs,
thus negatively impacting credit metrics, which were already weakly
positioned for the previous Baa1 rating.
REN's rating does not incorporate any uplift reflecting the possibility
of extraordinary support from the RoP. This is driven by (i) the
likelihood that the RoP will decrease its 51% (direct and indirect)
stake in REN through further privatisation; and (ii) a reduced likelihood
of support in the context of a weaker sovereign, which may face
increased demands on its resources.
REN's rating remains under review for possible further downgrade,
reflecting the potential further downwards move in the RoP's rating,
the company's exposure to stresses in the debt markets for Portuguese
issuers associated with the RoP's weakening credit profile and REN's
inability to disconnect itself from local economic and market circumstances.
Moody's expects to conclude its review on REN's rating following
the completion of the review on the RoP's rating. REN's
rating positioning will depend on the RoP's rating, but Moody's
review will also focus on (i) the positioning of REN's projected credit
metrics; and (ii) the company's liquidity profile, exhibiting
some exposure to Portuguese banks and material debt maturities in the
second half of 2011 - first half of 2012, which could make
the company potentially vulnerable to higher financing costs in the context
of the recent actions on the RoP. Furthermore, if REN were
to be privatised as planned, there could be downward pressure on
the rating dependent on the company's expected post-privatisation
More generally, going forward, Moody's expects REN's
rating to be close to the RoP's rating although Moody's will
consider whether the company's rating could potentially pierce the
RoP's rating by a maximum of one notch, assuming a sound liquidity
profile, continued regulatory stability and no adverse political
intervention. Whilst recognising the low risk and the fully regulated
profile of the company, this reflects REN's exposure to the
RoP's deteriorating credit quality.
The principal methodology used in this rating was Regulated Electric and
Gas Networks, published in August 2009.
REN is the exclusive long-term concessionaire of Portugal's mainland
high-voltage electricity transmission grid and the country's high-pressure
natural gas transportation network. As of December 2011,
the company reported revenues of EUR759 million and operating income of
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Service information, and confidential and proprietary Moody's
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Moody's Investors Service Ltd.
Moody's downgrades REN's rating to Baa2; keeps rating under review for downgrade
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