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Fitch affirms Nuclearelectrica's rating at 'BBB-' outlook stable

Fitch Ratings on Tuesday affirmed Romania's nuclear power generation company Nuclearelectrica's Long-Term Issuer Default Rating (IDR) at 'BBB-' with a Stable Outlook.

The affirmation reflects Nuclearelectrica's strong market position as the sole producer of electricity from low-cost nuclear power plants in Romania, its solid position in the merit order and low net leverage at least until 2025. This underpins its Standalone Credit Profile (SCP) at 'bbb-' and the Stable Outlook on the IDR.

However, a large capex plan, particularly the refurbishment of nuclear unit 1, which will not be operational in 2027-2029, will considerably increase net leverage from 2027. This may lead to negative rating action depending on its projected financial profile in 2027-2030, potential support measures from the Romanian state (BBB-/Stable) as the majority shareholder, changes in revenue visibility due to possible contracts for difference (CfD) and progress with other projects, among other things, says Fitch.

The business profile of Nuclearelectrica is supported by its strong market position as the sole producer of electricity based on nuclear technology, covering around 20% of the country's total demand for electricity and 35% of electricity produced without greenhouse gas emissions. The company operates two nuclear reactors with a total installed capacity of about 1.4GW, has a strong operational record, high operating margins and a solid position in the Romanian merit order.

In 2022, the company's EBITDA increased to RON3.6 billion (up 106% yoy), as a result of high electricity prices in bilateral contracts and on the spot market. We expect profitability to remain healthy in 2023-2026, with average annual EBITDA of around RON 1.9 billion.

Nuclearelectrica's status, ownership and control links with the state are 'Strong', reflecting majority state ownership (82.5%), and its strategic importance as the sole producer of nuclear energy in Romania with a large share of covered electricity demand.

The financial and socio-political implications of Nuclearelectrica's default for Romania are both 'Moderate', as Fitch assumes that most of its operations would likely continue even with Nuclearelectrica in financial distress.

Among the factors that could, individually or collectively, lead to negative rating action/downgrade in the case of Nuclearelectrica are negative rating action on Romania; inability to maintain adequate liquidity and to finalise financing for increased capex plans on a timely basis and within our assumptions for interest costs, and worse-than-expected operating performance.

Fitch does not anticipate an improvement in Nuclearelectrica's SCP due to the large upcoming capex programme.