Fitch has put Enagas and Naturgy in negative revision following the decision of the regulator (CNMC) on regulated incomes. For the ratings agency Fitch, the reforms the Spanish regulator CNMC wants to carry out include a significant change in methodology which means less income for the companies in the sector in 2021-2026.
Fitch considers that, if the final decision is in line with the draft and without compensatory measures, the credit metrics would be too weak for the current ratings. Fitch´s current rating for Enagas is A- and for Naturgy is BBB.
In the opinion of Bankinter analysis team, Fitch is joining Standard & Poor´s on the future credit ratings of companies in the sector. The cut proposed by CNMC in average annual incomes for the regulatory period 2021-26 is -21.8% for the gas transportation network and -17.8% for the gas distribution network.
CNMC´s proposal will be submitted for public consultation in the next few months and the final decision could be less than in the proposal. In any case, the cuts proposed are much greater than expected and will affect the ability of these groups in the future to generate cash flow. This would undoubtedly result in worsening credit ratios. A ratings cut means greater financing costs for the companies. After the announcement of these cuts last Friday (12 July), we changed our recommendation for Enagas to Sell from Neutral (O.P. 17.30€/share) and for Naturgy to Neutral from Buy (O.P. 23.70€/share).
