Ratings agency Standard & Poor's has revised its outlook for Enemalta to stable from negative.
It has affirmed its 'B+' long-term corporate credit rating on the company.
"The outlook revision reflects our understanding that the government of Malta is working on a comprehensive restructuring of its power sector, with an aim to reduce the island's reliance on very high-cost, oil-dependent electricity generation," the corporation said.
"As part of this restructuring, Malta is near finalisation of a transaction with Shanghai Power Electric, a subsidiary of China Power Investment Corporation, which will inject about €200 million in equity in return for a minority stake in Enemalta.
"In our view, an equity injection will relieve the immediate pressure on Enemalta's liquidity position and mark the start of a deleveraging process. Nevertheless, under our base-case scenario, we still expect that Enemalta will generate negative profits and cash flows in the near to medium term," the agency said.
"This is because a long-term structural plan to restore profitability has not been made public and is therefore not yet reflected in our projections."
S&P said the cost of electricity in Malta is among the highest in Europe, mainly reflecting the country's high-cost and oil-based generation portfolio and lack of interconnection with other electricity markets.
"In order to reduce the high cost of electricity, Malta is aiming to convert its existing plants to run on cheaper natural gas instead of heavy fuel oil, and is also looking to import electricity via a submarine cable from Sicily, which is currently under construction and scheduled for completion in 2015 in our base-case scenario. It is unclear, however, if these efforts will restore profitability at Enemalta or be passed on consumers to the detriment of Enemalta."
It said that in the absence of a long-term and credible structural solution to restore Enemalta's very poor profitability, the corporation was unlikely to achieve a stand-alone credit profile above its current assessment at 'ccc'.
"The stable outlook reflects our expectation that Enemalta's liquidity position will stabilize following the equity injection from Shanghai Power Electric.
"We could upgrade Enemalta if we believed its ongoing restructuring would allow the company to achieve financial stability in the long term. This could occur in our view if Enemalta were able to lower its cost of electricity procurement (including cost of production for its own generation) and if it were able to charge the full price for electricity production and procurement, passing costs on to consumers," S&P said.
"In our opinion, Enemalta will only stabilize its performance if the company completes a comprehensive rationalization of its cost structure and eliminates its exposure to volatile oil prices.
"We could lower the rating on Enemalta if we believed the company was unlikely to receive the funds from Shanghai Power Electric and therefore improve its liquidity position. Moreover, any sign of weakening government support could lead us to revise our GRE assessment and a lowering of the ratings."