State-owned utility companies operating in GCC countries will have moderate leverage headroom on their standalone credit profiles between 2021 and 2024, according to top ratings agency Fitch.

The ratings agency pointed out that it expects shareholders to provide support, if needed, given the strength of the links and the incentive to support.

"We therefore do not believe there are immediate risks for the ratings of Saudi Electricity Company which is at (A/Stable), Abu Dhabi National Electricity Company (AA-/Stable), Oman Electricity Transmission Company (BB/Stable), and Mazoon Electricity Company (BB-/Stable)," stated Fitch in its review.

According to Fitch, higher capex between 2021 and 2024, sector reforms, and a change in dividend payouts will have an impact on the utilities’ financial profiles.

GCC countries will have to significantly increase investments to meet emissions targets, which will drive higher capex. Most investments will be in developing new renewable energy assets, improving the efficiency of the networks, and connecting the newly developed capacity to the grid.

Fitch expects GCC governments to keep developing their regulatory frameworks, which could in the medium term improve the utilities’ business risk profile. This will allow them to have higher debt capacity at each rating level on a standalone basis.

"We also expect dividends distributions to shareholders to increase on average between 2021 and 2024 for Abu Dhabi National Electricity Company, Saudi Electricity Company, and Oman Electricity Transmission Company (OETC), it added.

The scores for Taqa and SEC highlight the strength of the links with the states and the strong incentive to support. Both companies historically received material financial support.

Moreover, given their monopolistic position, they have a strategic role in delivering the governments’ economic and energy targets.

"In our view the government would have a strong incentive to avoid a default, since it would damage its reputation and affect the cost of funding for other GREs.

OETC scores 17.5 under our GRE criteria, which is the lowest score of the panel. This is due to our assessment under Support Track Record & Expectations, which we view as ‘Moderate’ for OETC compared to ‘Strong’ for Mazoon, and ‘Very Strong’ for Taqa and SEC.

Following the partial privatisation of OETC, Article 67 will no longer apply and any future long-term financial support will have to be provided by the two shareholders.

Article 67 states that the Ministry of Finance will ensure that fully owned transmission and distribution subsidiaries have sufficient liquidity to meet its debt and trading obligations as long as they are fully owned government subsidiaries, said the Fitch report.

Transmission and Distribution Requirements GCC countries will have to significantly increase investments to meet emissions targets. Most investments will be in developing new renewable energy assets, improving the efficiency of the networks, and connecting the newly developed capacity to the grid, it added.-TradeArabia News Service

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