The rating action reflects the likelihood that S&P will downgrade the company in the near term because of increasing pressure on Transgaz’s business risk profile. “This results from our mounting uncertainty regarding the supportiveness of the regulatory framework for gas transmission in Romania. We understand that the Romanian regulator was considering a revision of the existing tariff-setting mechanism to allow Transgaz to partially recover revenues linked to gas volumes lost over the five-year regulatory period ending June 2012,” the rating agency said in a statement.
“However, we understand that Transgaz’s recent discussions with the regulator indicate worsened prospects of recovery. In our view, this is not consistent with our previous assessment of the visibility and predictability of the regulatory environment. We believe that the current situation and the regulator’s untimely revisions to Transgaz’s remuneration highlight key regulatory risks in a jurisdiction where regulatory determinations are not independent of the government.”
Moreover, S&P sees a risk of negative effects on Transgaz’s financial risk profile as the Romanian government’s asks for significant dividends. “Transgaz aims to offset the higher dividends by materially reducing its capital expenditure over the medium term. We view this ambition as challenging, considering the significant investments needed to upgrade the Romanian gas transmission network. As a result, we see the risk of a material deterioration in Transgaz’s historically solid credit metrics over the longer term.”
S&P said it plans to resolve the CreditWatch within the next 90 days.