State firm gets Moody's boost
Moody's has upgraded Gas Networks Ireland's rating, expecting a "sound operating performance" and stable metrics in coming years, even with the energy regulator expected to cut the permitted returns the company is able to generate.
Gas Networks Ireland (GNI) is a unit of state-owned Ervia, which also controls Irish Water. Moody's gave GNI an A3 rating, upgrading it from Baa1.
"Our decision to upgrade GNI's ratings is based on the company's moderate level of gearing, strong free cash flow generation, and the completion of its corporate restructuring," said Frad Barasi, the lead analyst at Moody's for GNI.
"We also take into account the track record of the regulatory framework in Ireland which governs the vast majority of GNI's revenues," he added.
GNI, the owner and operator of the natural gas transmission and distribution network in Ireland, also owns and operates the natural gas interconnectors between Scotland and the Republic of Ireland and the transmission network connecting Northern Ireland with the Republic.
Moody's pointed out that the end of the current regulatory period for gas transmission and distribution ends in September 2017. A new draft determination is due to be published by the energy regulator in mid-2017.
"Given the continuing low-yield environment, a reduction in allowed returns from the current weighted average cost of capital of 5.2pc is to be expected," according to Moody's.
"In Moody's view, however, GNI has flexibility to accommodate lower returns."