Chinese cash injection stabilises Enemalta outlook, says S&P

Standard & Poor' as revised Enemalta Corporation's outlook to 'stable' from 'negative', on its understanding of Labour's plan to shift energy dependence from heavy fuel oil to natural gas.

As part of this restructuring, Malta is now near finalisation of a transaction with Shanghai Power Electric, a subsidiary of China Power Investment Corporation, which will inject about €200 million in equity in return for a minority stake in Enemalta.

"In our view, an equity injection will relieve the immediate pressure on Enemalta's liquidity position and mark the start of a deleveraging process," S&P said.

However, the ratings agency said Enemalta will generate negative profits and cash flows in the near to medium term because a long-term structural plan to restore profitability has not been made public and is therefore not yet reflected in our projections.

The cost of electricity in Malta is among the highest in Europe, mainly reflecting the country's high-cost and oil-based generation portfolio and lack of interconnection with other electricity markets.

In order to reduce the high cost of electricity, Malta is aiming to convert its existing plants to run on cheaper natural gas instead of heavy fuel oil, and is also looking to import electricity via a submarine cable from Sicily, which is currently under construction and scheduled for completion in 2015.

S&P however has said that it was unclear if these efforts will restore profitability at Enemalta or be passed on consumers to the detriment of Enemalta.

"Absent a long-term and credible structural solution to restore Enemalta's very poor profitability, the company is unlikely to achieve a stand-alone credit profile above our current assessment at 'ccc'," S&P said.

But the stable outlook reflects the agency's expectation that Enemalta's liquidity position will stabilize following the equity injection from Shanghai Power Electric.

The agency said it would upgrade Enemalta if the full price for electricity production and cost would be passed on to consumers."