Moody’s upgrades Czech company ČEZ’s rating outlook from negative to positive

Rating agency Moody’s today upgraded the outlook on the energy company ČEZ’s credit rating from negative to positive. This signals the possibility of a future upgrade to its main rating, which it has so far affirmed at Baa1. Moody’s upgraded the outlook following the Czech government’s announcement in April that the state would buy an 80 percent stake in Elektrárna Dukovany II (EDU II), the company carrying out the project to build two new nuclear units at Dukovany.

According to Moody’s, the improved outlook reflects the removal of much of the risk associated with building the new units. “ČEZ will retain a 20 percent stake in EDU II, but we understand that its involvement in building the two new reactors will be limited to advisory and various other services,” the agency said in its report today.

Capitalinked.com analyst Radim Dohnal also sees the government’s decision to buy an 80 percent stake in EDU II as key to the improved rating outlook. “ČEZ will thus shed a significant credit burden and will not have to include the substantial debt associated with building one or two units at Dukovany in its consolidated balance sheet,” Dohnal said.

The analyst noted that the Czech Republic’s rating is three to four notches higher than ČEZ’s, the same gap as between French energy company EDF and France. “So even EDF’s nationalization brought it no advantage. EDF’s rating has not changed in the two years since it was nationalized,” he said.

ČEZ is one of the largest energy companies in Czechia. The state is the company’s majority shareholder, holding around 70 percent of its shares through the Ministry of Finance. In the first quarter of this year, the company’s net profit fell 6 percent year on year to 12.8 billion crowns, but exceeded analysts’ expectations.

A credit rating is an important guide for investors, as it indicates the likelihood that loans will be repaid on time. It has a significant influence on lenders’ willingness to lend to a company or other entity, as well as on the terms of the loan, such as the interest rate. The higher the rating, the more favorably lenders view the borrower, and the more likely it is to secure cheaper loans.