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.
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.