S&P downgrades Elenia Verkko Oyj’s issue rating from BBB+ (negative) to BBB (stable)
S&P Global Ratings (S&P) has downgraded the BBB+ issue rating of Elenia Verkko Oyj by one notch to BBB with stable outlook effective on 28 January 2022. S&P sees that the regulatory environment for distribution system operators (DSOs) in Finland has weakened as a result of the changes to the framework in the middle of the regulatory period. The changes confirmed by the Energy Authority (EA) became effective on 1 January 2022.
It is highly unusual for a regulatory framework to be amended in the middle of the regulatory period. Elenia shares S&P’s view that changes to the previously confirmed regulatory methods for the current regulatory period will reduce the predictability and stability of the Finnish regulatory framework and undermine its credibility. Consequently, S&P has reduced their assessment of the regulatory regime to strong / adequate.
S&P placed Elenia’s rating on CreditWatch with negative outlook on 29 October 2021. Consequently, Elenia has communicated that it will significantly reduce its investments in 2022 to improve cash flows and indicated also to S&P that the shareholder remunerations will be reduced to improve operational flexibility. However, these measures were not sufficient to maintain the issue rating. It is also worth noting that the change in rating is driven solely by the regulatory amendments and not actual or expected changes in Elenia’s credit ratios.
Despite the reduced predictability of the Finnish regulator, S&P believes that Elenia remains one of the most efficient DSOs in Finland. Elenia concurs with S&P’s assessment and firmly believes that the regulatory methods will remain supportive to the DSOs and compensate for the long-term investments into security of supply also in the upcoming sixth (2024-2027) and seventh (2028-2031) regulatory periods.
Also, as previously communicated, Elenia is seeking repeal from the Market Court against the decisions of the EA.
S&P’s rating report can be found at www.elenia.fi/en/investors/credit-ratings