Research Update: France-Based Energy Company ENGIE Affirmed At 'A-/A-2' Amid Its Transformation; Outlook Negative

ENGIE is rapidly changing its business risk profile with substantial disposals in its power merchant activities in recent quarters, and it has announced plans to dispose of its exploration and production activities in 2017. We believe the group's business portfolio has become increasingly regulated and focused on long-term contracts, supporting increased visibility and predictability of cash flows. In our view, the transformation process should also contribute to moderate debt reduction in 2017 and 2018, bearing in mind that the company's asset-rotation plan also involves important investment outlays. We anticipate a mild recovery of ratios in 2017. We are therefore affirming our 'A-/A-2' ratings on ENGIE. The negative outlook indicates that we could downgrade ENGIE over the next 12-18 months if

...+ ENGIE is rapidly changing its business risk profile with substantial disposals in its power merchant activities in recent quarters, and it has announced plans to dispose of its exploration and production activities in 2017. + We believe the group's business portfolio has become increasingly regulated and focused on long-term contracts, supporting increased visibility and predictability of cash flows. + In our view, the transformation process should also contribute to moderate debt reduction in 2017 and 2018, bearing in mind that the company's asset-rotation plan also involves important investment outlays. We anticipate a mild recovery of ratios in 2017. + We are therefore affirming our 'A-/A-2' ratings on ENGIE. + The negative outlook indicates that we could downgrade ENGIE over the next 12-18 months if the company struggles to deleverage and our adjusted funds from operations to debt figure does not improve to 20% or higher in 2018....

Research Update