Fitch affirms ENEA at 'BBB' on Bogdanka acquisition

Fitch Ratings has affirmed state-controled power company Enea's Long-term foreign and local currency Issuer Default Ratings (IDRs) at 'BBB' and National Long-term rating at 'A(pol)' with Stable Outlooks, a press release read. The acquisition has officially been completed, the value of the transaction stood at PLN 1.48 billion. The affirmation reflects the rating agency's expectation that ENEA's credit metrics will remain within guidance for the rating, despite the company's acquisition of a 64.57% stake in coal mining company Lubelski Wegiel Bogdanka S.A. (Bogdanka) for PLN 1.48 bln (EUR 0.35 bln), and lower expected WACC in electricity distribution from 2016 negatively affecting ENEA's profitability. Fitch claimed that the acquisition of Bogdanka increases ENEA's vertical integration and reduces the coal supply and coal price risks to its generation division as Bogdanka is ENEA's main coal supplier. However, the acquisition also changes ENEA's business profile by reducing the share of the more predictable and fairly stable regulated electricity distribution at the expense of risky and cyclical coal mining, the press release also read. Fitch's updated projections show funds from operations (FFO) adjusted net leverage increasing to about 3x in 2017-2019 on the back of the large capex plan from 0.7x in 2014. The agency views net leverage of 3x as a maximum level for the current ratings. Any additional acquisitions of coal mining companies increasing leverage or leading to a weaker business profile of the group would be negative for ENEA's ratings. Enea is 51.5 percent owned by the Polish State Treasury.