SPP gas utility prepares for 150 million EUR bond

International ratings agencies Moody's Investors Service Ltd. and Fitch IBCA on September 7 assigned the state-owned gas utility Slovenský Plynárenský Priemysel (SPP) ratings for its forthcoming 150 million EUR, five-year, senior unsecured bond issue.

Moody's rated SPP at Ba1 with a negative outlook. The rating is constrained by Slovakia's Ba1 sovereign ceiling for foreign currency debt. Fitch IBCA's rating is BB+, and is likewise determined by Slovakia's country's rating.

The ratings reflect the tight control the Slovak state exercises over the SPP's operations and financial position, as well as the pipeline's dependence on gas supplies from Russia via the Ukraine. It also shows concern for the increasing long-term competition for gas transit from other pipelines, the SPP's increasing debt level, severe receivables difficulties, the questionable value of some of its investments, and recent liquidity problems. The monopoly position of the SPP on the Slovak market and the non-transparency of its pricing policy had negative effects on the rating as well.

Positive support for the ratings came from the importance of the SPP's role in transporting gas from Russia to western Europe, the SPP's reliable track record for supply and the stability ensured by its long-term contracts, the company's significance to Slovakia's economy, and its generally robust debt protection measures.

The SPP operates the Slovak part of a pipeline which carries over 90% of all Russian natural gas exports to western Europe, where they represent over a third of the total gas supply. The pipeline is, therefore, of immense economic significance to both Russia and western Europe and has operated without interruption for nearly 30 years.

The SPP plans to issue the bond in early October, and the arranger of the issue is Bank Paribas. The SPP expects yields in this bond issue at the level of Slovakia's' Eurobonds.

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