Electrica’s Rating Outlook Upgraded by Fitch

The international agency Fitch Ratings has confirmed the significant upgrade of Electrica Group – a key player on the Romanian electricity distribution, supply and generation market, improving its rating outlook and strengthening its reputation with global investors. Thus, the company’s rating outlook has been changed from “negative” to “stable” and confirmed its long-term rating at “BBB-“, Electrica reports.

The positive development comes after a complex period marked by global economic and energy challenges.

Electrica’s rating is similar to Romania’s sovereign rating, but the company’s outlook is better than that attached to the sovereign rating, which remains “negative”. In addition, there is the potential for Electrica’s rating to become up to two notches higher than the sovereign.

Since the first assessment by Fitch Ratings in 2019 and until 2022, Electrica has had a higher rating than the sovereign, namely “BBB” with an initially “stable” and later “negative” outlook, compared to the sovereign rating “BBB-“.

From 2022, when Electrica’s rating was revised to “BBB-” with a “negative” outlook, the company’s rating became ‘similar’ to the sovereign until 2023, when the sovereign rating outlook was upgraded to “stable”. In December 2024, when the sovereign rating outlook reverted to “negative”, Electrica was again aligned to the sovereign rating.

With the confirmation of Electrica’s long-term rating at “BBB-” and the upgrade of its outlook to “stable”, the company has a rating similar to the sovereign, but with a better outlook, while the sovereign rating remains “negative”.

“The return to a ‘stable’ outlook comes after a complex journey amid the uncertainties generated by the pandemic and the energy crisis. The fact that today we have a higher rating outlook than the sovereign rating confirms the company’s resilience and adaptability. The Fitch Ratings’ decision validates our sustained efforts to strengthen the Electrica Group’s financial position and supports us in the implementation of our strategic plans, including the green bond issuance approved at the end of 2024 and scheduled for this year. I thank all my colleagues for their effort and involvement in achieving these results,”, said Alexandru Chirita, CEO of Electrica.

 

Key rating drivers

• Improving Funding Structure: Electrica has reduced its short-term debt to about 60% of total debt at end-2024 from 80% at end-2023. Electrica secured a new EUR200 million long-term loan from the European Investment Bank (EIB) for capex on distribution. Electrica is also aiming to sign a RON3.1 billion syndicated facility in April, which will include RON1.3 billion long-term facilities, of which RON1 billion is to support capex on generation and distribution and RON300 million is for refinancing.
• Solid Financial Performance: Electrica generated about RON1.3 billion of EBITDA in 2024, supported by solid results in the distribution segment, growth of which was driven by a 6.8% rise in the distribution tariff and 4.2% growth in volumes.
• Projected EBITDA Increase: A slight improvement in EBITDA in 2025 to about RON1.5 billion, supported by the normalisation of supply EBITDA, is forecast. From 2027, EBITDA is expected to meaningfully benefit from contributions from the generation segment, amounting to around RON180 million per year.
• Leverage within Sensitivities: Average funds from operations (FFO) net leverage are expected to remain within Fitch rating sensitivities of 3x to 4x from 2025 to 2029, supported by stable EBITDA and FFO generation. A total working capital inflow of RON1.8 billion in 2025-2026, primarily consisting of government compensation payments for the supply scheme, is anticipated. After the supply scheme expires, the company will operate on a liberalised basis, collecting payments directly from customers and reducing the time lag between costs and compensation.
• New Regulatory Period in Distribution: Electrica entered into the fifth regulatory period in 2024, which remains broadly consistent with previous regulation. The return on the regulated asset base increased to 6.94% from 6.39%, offsetting lower incentives on certain investments. Additionally, network losses are now recognized separately from revenue and regulated independently.
• Renewable Capex Programme: Electrica is planning to invest around RON1.6 billion in renewables between 2025-2029. This should boost its energy production, serve as a hedge for supply and distribution operations against energy price volatility and contribute towards Romania’s net zero emissions target. It is estimated that generation will contribute about 10% of EBITDA from 2027 once projects are commissioned. This will improve the supply-generation balance and reduce supply activity risk.

 

Peer analysis

SNTGN TRANSGAZ SA (Transgaz; BBB-/Stable) is Electrica’s closest-rated peer. However, Fitch believes Transgaz has higher debt capacity (4.7x negative sensitivity versus Electrica’s 4.0x), mainly due to its lower exposure to unregulated businesses (around 10% short-term gas transit versus around 20% electricity supply) and its role as a national transport system operator.

Other peers include e-netz Suedhessen AG (BBB+/Stable), which is a German regional electricity and gas distribution company, and Czech Gas Networks Investments S.a r.l (BBB+/Stable; SCP: bbb). The two companies operate in more predictable regulatory frameworks but have significantly higher leverage than Electrica. Another peer is Slovak gas distribution company SPP – distribucia, a.s. (A-/Stable; SCP: a), which has close to 100% EBITDA from distribution, larger scale of operations and neutral free cash flow (FCF).

A wider peer group includes distribution system operators for electricity and gas across the EU, such as E.ON SE (BBB+/Stable) and Italgas S.p.A. (BBB+/Stable).

 

The largest IPO in the history of the Romanian capital market

In 2014, Electrica made history by launching the largest initial public offering (IPO) in the history of the Bucharest Stock Exchange (BVB), attracting almost RON 2 billion (EUR 444 million). This was the only privatization with a majority stake carried out through the stock exchange and the only listing in the Romanian state portfolio with the issuance of new shares. Even after 10 years, Electrica’s IPO remains the largest primary offering in the history of the Romanian capital market. Today, the company’s shares are part of the BVB’s main indexes and are included in the MSCI Frontier Markets and FTSE Russell Emerging Markets indexes.

In the 10 years since its listing, Electrica has seen significant growth, doubling the number of shareholders to more than 13,700 in 2024. To date, Electrica’s share transactions have totalled about RON 6.2 billion, representing 4.7% of the liquidity recorded in the last 10 years on the Main Market of the Bucharest Stock Exchange. These achievements have attracted a diversified portfolio of international investors, making an essential contribution to Romania’s promotion to Emerging Market status. Also, during this period, Electrica invested over RON 6 billion in modernizing and expanding the energy infrastructure.