Enemalta’s credit rating received a boost yesterday when Standard & Poor’s delivered a positive assessment of the company’s transformation programme.
While reaffirming the energy company’s B+ rating with a stable outlook, Standard & Poor’s improved Enemalta’s stand-alone rating to CCC+ from CCC.
The stand-alone rating focuses solely on the company’s performance without taking into consideration its shareholders – the government and Shanghai Electric Power – and the government guarantees for its debt.
The improvement was the result of a decline in Enemalta’s “default risk”, the agency said.
We think Enemalta is on track to realign its cost base
It was Energy Minister Konrad Mizzi who broke the news during a press conference at Auberge de Castille, in Valletta.
A beaming Dr Mizzi described the development as “an important milestone” for Enemalta, which just two years ago was “a dockyard in the making”.
The improvement in the stand-alone rating reflected the government’s commitment to turn Enemalta around, he said.
He noted the assessment was all the more significant because the rating agency took into consideration the divestment of the profitable petroleum division to government-owned company Enemed.
“The assessment focused on the new Enemalta without the petroleum division, which had been the company’s only profitable unit, and the inclusion of Shanghai Electric,” Dr Mizzi said.
Since taking office in 2013, the government had attracted Chinese investment in the company, sold off the BWSC plant to the Chinese and awarded Electrogas, a private consortium, the contract to build a liquefied natural gas terminal and gas-fired power station.
Standard & Poor’s said the closure of the Marsa power station and the conversion of energy generation to gas would help reduce Enemalta’s costs. “We consider the company’s restructuring is proceeding in line with our expectations and that its liquidity squeeze has subsided considerably... We think Enemalta is on track to realign its cost base,” the agency said.
It estimates the process to transform Enemalta into a distributor and supplier of power would be completed by 2016. This is the target date for the completion of the gas power station and the LNG terminal.
The rating agency said the transformation would enable Enemalta to “recover positive operating cash flows from 2017”.
Looking ahead, Standard & Poor’s said it could upgrade Enemalta if the ongoing restructuring enable it to achieve financial stability in the long term. “This could occur if Enemalta generated positive operating cash flow on a sustainable basis. However, this is not imminent in our view,” the agency said.
Enemalta also faces the risk of a lower rating if the full conversion to gas was delayed, forcing it to continue its current generation operations. The Electrogas plant had to be ready by the end of this month, according to the Labour Party’s pre-electoral pledge, but was delayed by 15 months. The government attributed this delay to its decision to seek investment from Shanghai Electric Power.
According to the government, the talks with the Chinese company, which included the sale of the BWSC plant and a commitment to transform it into gas, had stalled the LNG works because of operational issues that had to be cleared between Shanghai, Enemalta and Electrogas.
Enemalta is bound with an 18-year contract to buy electricity produced by Electrogas.
Dr Mizzi said work on the Delimara gas terminal was moving ahead as planned with Electrogas delivering monthly progress reports.
He said extensive piling works in preparation for the jetty where the LNG storage ship would be moored were under way.