Link Securities | The world’s major rating agencies have given the go-ahead to Iberdrola ‘s (IBE) biggest deal in recent years. Standard & Poors (S&P), Fitch and Moody’s estimate that the acquisition of 88% of British grid operator Electricity North West (ENW) for around €5 billion will improve the electricity company’s earnings structure, elEconomista reported on Tuesday.
S&P expects ENW to contribute €500 million annually to IBE’s EBITDA (+3.5% versus 2023). The contribution from regulated activities will be around 50%, compared to the current range of between 47% and 48%. “We believe IBE will maintain its funds from operations (FFO) to debt ratio between 18% and 19% in 2025 and 2026, which is comfortably above our expectation of 17% for a BBB+ rating,” it adds.
Moody’s, meanwhile, says in a report that the acquisition of ENW is positive from the point of view of IBE’s long-term credit rating of Baa1. “The acquisition will strengthen the predictability of IBE’s cash generation, given the well-established and transparent regulatory regime [in the UK] and ENW’s strong operational performance,” it says. “We anticipate that IBE will remain well positioned in its rating category,” it adds. The agency notes that while IBE will not acquire 100 per cent of ENW, it will take full control of the UK company and that it has a “strong track record of successfully integrating acquisitions”. “In line with its approach to other group subsidiaries, we expect further operational and financial integration over time,” Moody’s adds in its analysis.
Fitch, the world’s third largest rating agency, also takes a positive view of IBE’s latest corporate deal: “It is well positioned to finance the acquisition entirely in cash, taking advantage of its ample cash reserves and headroom under its BBB+ rating”. The rating agency adds that the 88% acquisition with a cash outlay of around €2.5 billion (100% of ENW is valued at around €5 billion including debt) is “positive for IBE from a business point of view”.
