Rating agencies react to VNG’s application for stabilisation measures

• EnBW‘s credit ratings unchanged
• Moody‘s publishes Issuer Comment on Baa1 rating leaving rating evaluation unchanged
• Standard & Poor‘s confirms rating at A- and lowers outlook to “negative”

On 9 September 2022, VNG submitted an application to the German Federal Ministry for Economic Affairs and Climate Action for stabilisation measures under section 29 of the Energy Security of Supply Act since upstream suppliers had not fulfilled their supply obligations. Consequently, it had been necessary for VNG to procure gas quantities at considerably higher prices on the energy markets in order to maintain the ability to reliably supply VNG customers at significantly lower prices. Since VNG is a 74.21% subsidiary of EnBW Energie Baden-Württemberg AG (EnBW AG) both credit rating agencies, Moody’s and Standard & Poor’s (S&P), have commented on this development.

Moody’s published an issuer comment on 13 September 2022 stating that the credit implications for EnBW of VNG seeking support measures could be negative but the terms and conditions of any support to be provided are unclear so far. The agency expects a solution that eventually will reflect VNG's importance to the German energy supply where it is the third largest gas storage operator and gas importer. At the same time Moody’s acknowledges that EnBW reported a solid set of results for the first half of 2022 in spite of taking losses and provisions of €545 million resulting from restrictions in existing gas supply arrangements of VNG, and expects the positive earnings trend in EnBW’s generation portfolio to continue in the second half of the year.

On 15 September 2022, S&P affirmed EnBW’s A- issuer credit rating but revised the outlook to negative from stable. From S&P’s perspective the reprocurement losses that VNG is incurring and potential equity support from EnBW to VNG could pressure EnBW's credit metrics and result in a rating downgrade. The full effect depends on a potential agreement with the German government. S&P also states that other business areas, such as thermal and renewable generation, are likely to show improved performance in the current market environment. This could partially mitigate VNG's losses depending on the outcome of discussions on the possible introduction of a form of windfall taxes. The rating outlook could be revised back to stable after gaining clarity on VNG's full-year losses and sufficient visibility on the German gas market.

The full information may be viewed at: Bonds | EnBW