S&P downgraded PGNiG's credit rating from BBB to BBB-, with a stable outlook. According to S&P , the downgrade reflects PGNiG's deep trading losses due to the negative gas margin, coupled with higher debt levels on high investment expenditure. Nevertheless, S&P believes the deal with will enable to avoid further losses and will stabilize the firm’s financial performance and credit metrics.
Our view:
The news should not surprise the market after Moody’s downgraded PGNiG’s credit rating last week. Also, it was widely known that S&P put PGNiG’s BBB rating under review for a possible downgrade because of a weak operational performance in the first half of the year combined with growing debt on the acquisition of Termika. After the larger-thanexpected trading loss recorded in 9M12 and the consolidation of Vattenfall’s assets, we also noted the rapid erosion of key credit metrics. However, this is likely to be a temporary phenomenon: Gazprom’s lump sum payments and production from the Skarv and LMG fields arrive in 4Q12 and 2013 respectively, thus the key balance sheet metrics should normalize. This, together with a potentially favourable tariff decision (PGNiG has filed a proposal to cut natgas prices for industrial buyers by 3.3%), may make rating agencies review their ratings.