Research Update: Portuguese Electricity And Gas Network Operator REN 'BBB-/A-3' Ratings Affirmed; Outlook Remains Positive

Portugal's recently published electricity transmission framework for 2018-2020 is less supportive than we expected, and could weigh on REN-Redes Energeticas Nacionais' performance over that period. In addition, this year REN acquired stakes in Chilean gas pipeline Electrogas and in EDP Gas Distribuiçao (EDPG) that strengthened its business profile but tightened its financial headroom. However, REN intends to fund part of the EDPG acquisition with a €250 million capital increase before year-end 2017, and we expect its performance will stay strong. We are affirming our 'BBB-/A-3' ratings on REN. The positive outlook reflects that we still expect continuous improvement in the company's credit ratios over 2017-2019, despite lower regulatory return for electricity transmission from 2018, with adjusted funds from operations (FFO)

...+ Portugal's recently published electricity transmission framework for 2018-2020 is less supportive than we expected, and could weigh on REN-Redes Energeticas Nacionais' performance over that period. + In addition, this year REN acquired stakes in Chilean gas pipeline Electrogas and in EDP Gas Distribuitao (EDPG) that strengthened its business profile but tightened its financial headroom. + However, REN intends to fund part of the EDPG acquisition with a 250 million capital increase before year-end 2017, and we expect its performance will stay strong. + We are affirming our '###-/A-3' ratings on REN. + The positive outlook reflects that we still expect continuous improvement in the company's credit ratios over 2017-2019, despite lower regulatory return for electricity transmission from 2018, with adjusted funds from operations (FFO) to debt sustainably exceeding 13% on average....

Research Update