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MILAN - Moody’s cut the rating of Italy’s biggest utility, Enel, to Baa2 from Baa1 on Monday to reflect increased challenges in its core markets of Italy and Spain.
Enel, Europe’s most indebted utility, generated some 60 percent to 70 percent of its core earnings in the two countries in the first half of the year.
Moody’s said Enel’s exposure to markets like Latin America, Russia and Eastern Europe, as well as some renewables business, was unlikely to offset the macroeconomic, political and regulatory risks it faced on its core markets.
Falling electricity demand from the economic crisis and the coming on stream of power generated by renewable sources, which in Italy have dispatch priority to the power grid, have helped squeeze Enel’s margins.
“Moody’s expects that Enel will consider additional offsetting measures to those announced in its strategic plan in March (which were moderate divestments, lower dividends and some cutbacks in capital expenditure),” Moody’s said.
The ratings agency said the challenging conditions were also linked to weaker sovereign ratings in Spain and Italy.
Moody’s cut Italian sovereign debt to Baa2 with a negative outlook from A3 in July.
“Given the increasingly risky business environment, Enel would need to meet ratio guidance of retained cash flow/net debt in the mid-teens,” Moody’s said.
Enel, which controls Spanish utility Endesa, has said it expects a strong recovery in cash flow generation in the second half to cut its pile of debt to 43 billion euros at the end of the year after it rose to 47.5 billion in June.
Stephen Jewkes; Editing by M.D. Golan