Standard and Poors’ has revised its outlook on Enemalta to positive from stable.

 “We continue to regard power utility Enemalta PLC as a government-related entity with a "very high" likelihood of receiving extraordinary support from the government of Malta.

 “Accordingly, we are revising our outlook on Enemalta to positive from stable to reflect that on the sovereign, and affirming the 'B+' rating.,” it said.

It said that the outlook revision stemmed from a similar action on its long-term rating on Malta on July 10.

“Our rating on Enemalta incorporates three notches of uplift for government support, reflecting our view that there is a "very high" likelihood of timely and sufficient extraordinary support for Enemalta from the government if needed. This is based on our view of the company's:

• "Very important" role as the sole owner and operator of Malta's power distribution grid, which was connected to Europe in spring 2014 through a cable linking the island to Sicily. We could revise this assessment after  the construction of a new third-party gas-fuelled generation facility in Malta is completed; and
•   "Very strong" link with the Maltese government. The government's recent sale of a minority stake in Enemalta doesn't affect our assessment. Although we observe that the government continues to provide full and timely support to Enemalta if needed, we think it aims to gradually reduce its guarantees on most of Enemalta's debt, which would reduce the sovereign's exposure to contingent liabilities.

Standard and Poors said it assessed Enemalta's stand-alone credit profile (SACP) at 'ccc+'. Therefore, the Maltese government's improving credit quality had an impact on its long-term rating on the company.

“Our view of Enemalta's SACP is unchanged. We see some momentum in the roll out of the government's energy reform, which we believe will be positive for Enemalta's future development. However, we continue to assess the company's business risk profile as "vulnerable" and its financial risk profile as "highly leveraged," pending the return to positive cash flow generation.

“The positive outlook on Enemalta reflects the outlook on Malta.

“We would raise the rating on Enemalta by one notch if Malta is upgraded by one notch, barring no change to the "very high" likelihood of extraordinary government support, or if we believed the company's ongoing restructuring would enable it to achieve financial stability in the long term. This could occur if Enemalta generated positive operating cash flow on a sustainable basis and posted at least neutral free cash flow, which is not imminent, in our view.

“We could lower the rating on Enemalta if we perceived a delay to the full conversion of Malta's power generation system to gas, forcing Enemalta to continue its current oil-fired generation operations. We consider that such a delay would jeopardise the stabilisation of Enemalta's cost base.

“We could also downgrade the company if the government decided to further trim power tariffs to a level that would make it challenging for the utility to recover costs, or if Enemalta's shareholders adopted a very aggressive policy that would undermine the likelihood of sustainable deleveraging,” it warned.

In a statement, the government welcomed the revision and said it was evident that the turnaround from higher bills, a bankrupt Enemalta and total dependence on oil to lower tariffs, a strong company and conversion to gas was being successful.