Moody’s, the ratings agency, awarded Amprion – Germany’s fourth-largest electricity network – an A3 rating with a stable outlook, but warned that the utility’s sizeable capex programme over the next decade will test the firm’s financial, technical and managerial capabilities.
“Over the next decade, Amprion plans a significant investment programme, which is estimated to amount to around €3.3 billion. Such ambitious capex will not only burden the company’s financial performance, but also test its technical and managerial capabilities and pose a significant execution risk,” the ratings agency warned.
A group of German pension funds and life insurers – including the likes of Munich Re, ERGO, MEAG, Swisslife and Talanx – led by Commerz Real, a subsidiary of Commerbank which manages a range of property funds, paid €1.3 billion recently to acquire a 74.9 percent stake in Amprion from utility RWE, which still retains a 25.1 interest in the 11,000-kilometre electricity network.
The transaction became closely-watched when German watchdog Bundesnetzagentur announced, just one day after the deal closed, that it was considering reducing allowed returns for the electricity and gas sectors by a little over 1 percent starting in 2014 and 2013 respectively. The news caught Commerz Real by surprise, with a spokesman telling Infrastructure Investor in an emailed statement that:
“The announcement by the Bundesnetzagentur came as a surprise – in terms of timing as well as in terms of the message itself, since the plan to lower ceilings for equity returns would be contradictory to recent statements. This of course leads to confusion among grid operators and investors. However, it is important to point out that no final decisions have been taken and consultations have just begun. Market players will bring in their arguments as far as possible.”
Moody’s highlighted that it “views the German regulatory framework as less transparent and predictable than more established regimes, such as the UK framework, and therefore slightly riskier”. The ratings agency did add that German regulation, while fairly new, “allows transmission companies to cover efficient operating and capital costs, and to earn a fair return.”
The agency also pointed out that, under German regulation, there is a two-year lag for new investments to be incorporated into the regulated asset base.
Not everything is bad news for Commerz Real and its institutional investor clients, though. Moody’s found that “Amprion’s excellent short-term liquidity position is supported by solid cash flow generation from regulated network activities and healthy headroom under the €800 million medium-term credit facility, recently signed with a consortium of main German banks.”
To read an in-depth report on the Amprion transaction, please read the October issue of Infrastructure Investor magazine.