Fitch Ratings has affirmed Italian Acea S.p.A.'s Long-Term Issuer Default Rating (IDR) and senior unsecured rating at 'BBB+'.
The Outlook on the IDR is Stable.
The affirmation reflects the company's 2022-2024 visible prospects, underpinned by its focus on water and electricity regulated networks in central
We expect Acea to manage its net debt at around 3.0x EBITDA, which is a key factor in the assessment of its Standalone Credit Profile (SCP) at 'bbb+' given negligible headroom of funds from operations (FFO) net leverage under its current negative sensitivity threshold of 5.0x.
Our projections do not factor in strategic opportunities such as the potential waste-to-energy plant serving the
Key Rating Drivers
Standalone GRE Rating Drivers: Fitch views Acea as a government-related entity (GRE) under its criteria, given the
Limitations of Shareholder Links: We continue to rate Acea at its Standalone Credit Profile (SCP) level, reflecting also our assessment of 'insulated' access and control by the parent based on Acea's public listing status, the presence of strong minority shareholders and negligible financial integration with
Defensive Business Profile: Acea's predominant exposure to regulated distribution network businesses (over 80% of consolidated EBITDA in 2022-2024) has little to no volume/price risk and satisfactory protection from inflationary effects. We view the Italian regulator ARERA as independent and supportive, while the regulatory frameworks for electricity and gas distribution as some of the most mature in
Commodity Market Volatile but Manageable: We expect limited impact from the current exceptionally high and volatile commodity price environment. This is due to the limited contribution (around 10%-15%) of merchant activities to Acea's consolidated operating cash flow, and a prudent internal hedging policy. This limits Acea's open position on commodity to a minimal, mitigating its structurally long exposure to supply versus generation. Together with a pragmatic switch to a variable-priced supply offer for customers, it should allow Acea to navigate unstable market conditions without large volatility to results.
Manageable Political Risk: The Italian government's initiatives aimed at easing the burden of increasing energy bills will have a limited impact on Acea's results, in our view. The one-off 25% windfall tax on higher profits for the October 2021-April 2022 period compared with prior year and generation's clawbacks for excess profit above the settled price reference should not weigh heavily on Acea. Further, we do not expect the option of energy bill instalments to create a large working capital burden, given the company's improved record of effective working-capital management.
Negative FCF from Capex Expansion: Under our updated projections Fitch-defined EBITDA is
Negligible Leverage Headroom: Acea targets long-term consolidated net debt at 3x EBITDA. We expect the company to defend its targeted capital structure, as demonstrated by the disposal of its 60% stake of its solar business to Equitix, although we expect Acea to tolerate small breaches. The company's target remains consistent with the 'BBB+' rating, but our rating case foresees FFO net leverage at around 4.9x until 2024 (5.0x in 2021), implying very little headroom under our negative sensitivity.
Long-Term Business Plan Key: Acea's business plan is now expected to be released in autumn, outlining its 10-year strategic priorities and financial targets. We currently rate Acea based on in-continuity assumptions for its network exposure and leverage targets. The latter, in particular, does not include the effect of a potential large waste-to-energy plant to be tendered by the municipality of
Acea has an ESG Relevance Score of '4 'for group and governance structure, reflecting large third-party minority rights in its water business and potential intervention by its majority shareholder (
Derivation Summary
Acea has a better business profile than other Fitch-rated Italian multi-utilities such as
In comparison with pure international water network peers such the
Key Assumptions
Fitch's Key Assumptions Within Our Rating Case for the Issuer
EBITDA of grid and water divisions to rise to almost
Energy division's EBITDA to progressively increase to
Doubling of EBITDA contribution from the environment-services division by end of the business plan (around
Working-capital outflow in 2022 of around
Capex and selected acquisitions for
Cumulative dividends of more than
No major additional acquisitions or investments outside the latest business plan
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Upside is constrained by our view of the creditworthiness of the
Factors that could, individually or collectively, lead to negative rating action/downgrade:
FFO net leverage above 5.0x, or FFO interest coverage below 3.5x over a sustained period, for example, as a result of debt-funded acquisitions/investments beyond our expectations
A shift in the activity mix towards unregulated, affecting the predictability of cash flows
Deterioration, in our view, of the creditworthiness of the
Best/Worst Case Rating Scenario
International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
Liquidity and Debt Structure
Solid Liquidity: At
Issuer Profile
Acea is one of the largest Italian multi-utilities by revenue. It predominantly operates in the urban area of
Criteria Variation
Fitch views the contractor business of Italian utilities in the context of approved eco-bonus on the energy requalification of buildings as a pass-through item. This is mainly due to a clear recovery framework through tax credits in the following years.
In light of the prolongation of most of these bonuses and Acea's activity in the energy-efficiency field, we reverse the impact on leverage metrics caused by related investments/working-capital drains.
Summary of Financial Adjustments
Factoring related to securitisation (
Short-term deposits (
Third-party net income attributable to
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Acea has an ESG Relevance Score of '4' for group and governance structure, reflecting large third-party minority rights in the water business and potential intervention from majority shareholder, respectively. These, together with the weaker creditworthiness of the
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
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