Fitch confirms Transgaz rating at BBB minus, with stable outlook

Fitch Ratings has confirmed at 'BBB-' the Long-Term Issuer Default Rating (IDR) with a Stable Outlook for Romanian company SNTGN Transgaz SA, informs a release of the rating agency.

The rating of Transgaz mainly reflects its solid business profile as a concessionaire and operator of the gas transmission network in Romania as well as the agency's expectation of a progressive contraction of its international gas transit business derived from traditional routes.

The rating is supported by the country's regulation for gas transmission and Fitch's expectation that a significant current investment related to the Bulgaria-Romania-Hungary-Austria corridor (BRUA) will be added to Transgaz's regulated asset base (RAB), supporting future earnings. Transgaz's financial profile is strong with a limited net debt position at end-2019.

Fitch continues to rate the regulation of transmission in Romania as quite transparent and therefore supports Transgaz's rating.

In the medium- to long-term, the agency expects operating cash flows from the profitable gas transit activities from Ukraine to the Bulgarian border to gradually contract by more than 60%, reflecting the expiry of the current "ship-or-pay" contracts.

Transgaz's business profile is fairly resilient to the COVID-19 outbreak and related economic shock due to the dominant share of gas transmission in EBITDA and resilient national gas volume consumption driven by chemical industries.

Fitch does not foresee any significant pandemic-related delay on investments as well as any major impact related to trade receivables or bad debt.

Transgaz's majority shareholder is the Romanian state (BBB-/Negative) with a 59% stake. The government has strategic and operational oversight of Transgaz's activities and Fitch views the control factor as strong. However, the agency does not expect financial support for Transgaz and view its support record as weak, as are the financial implications of a default.

The company's rating could be revised upwards due to the reduction of cash flow volatility and could be downgraded following unfavorable changes in gas regulation in Romania, the negative revision of expectations for international gas transit flows, downgrading Romania's rating below "BB plus".