Enagas rating upgraded to Baa1 by Moody’s with stable outlook

Investing.com -- Moody’s Ratings has upgraded the long-term issuer rating of Enagas (BME:ENAG) S.A. and the senior unsecured rating of Enagas Transporte, S.A. to Baa1 from Baa2. The Prime-2 short-term issuer rating of Enagas remains affirmed. The outlook for both entities has shifted from positive to stable.

The upgrade follows a strategic update from Enagas on February 18, 2025, which detailed revised investment plans for the period of 2025-2030.

Moody’s expects that Enagas will exhibit credit metrics consistent with a Baa1 rating from 2025 to 2027, with funds from operations (FFO)/net debt remaining above 20%.

In 2024, Enagas successfully reduced its debt, largely due to the sale of its 30.2% stake in the US company Tallgrass Energy L.P. This led to a decrease in adjusted net debt from EUR3.3 billion at the end of 2023 to EUR2.4 billion at the end of 2024. As a result, the FFO/net debt ratio reached 31.1% in 2024.

Enagas’ net debt is expected to remain relatively unchanged until 2026. The company’s net capital expenditure will be limited, and dividend distributions will stay at EUR1 per share, or about 40% of FFO. Consequently, Moody’s expects the FFO/net debt ratio to be in the mid-to-low twenties in percentage terms in 2025-26.

From 2027, a gradual weakening of credit metrics is expected, largely dependent on the pace of capex developments and the remuneration of natural gas and hydrogen investments. Enagas plans to spend around EUR4.0 billion in capex between 2025 and 2030, with EUR3.125 billion allocated to hydrogen infrastructure from 2027 to 2030.

The company’s ratings continue to reflect the low business risk profile of its monopoly gas transport, re-gasification, and storage activities, which will continue to represent around 70% of its FFO.

However, Enagas’ ratings are limited by the ongoing decline in Spanish regulated transmission revenues, the high reliance on dividends from international midstream assets, and the new investment cycle in hydrogen which will likely require substantial capital spending from 2027.

The stable outlook reflects expectations that the group’s credit metrics will remain in line with the ratio guidance for the current rating, including FFO/net debt above 20%.

Enagas’ ratings could be upgraded if the company strengthens its financial profile while providing greater visibility on hydrogen investments. However, a downgrade could occur if FFO/net debt were to decline below 20% due to large investments not supported by balance-sheet strengthening measures, shareholder distributions, or adverse regulatory developments.

The ratio guidance may be adjusted in accordance with Enagas’ evolving business risk profile over the coming years as more visibility is expected on the credit profile impact of the hydrogen investments.

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