S&P Revises Romanian Transgaz Outlook To Stable; Affirms Ratings

S&P affirmed Transgaz's long-term corporate credit ratings of 'BBB-' (local currency) and 'BB+' (foreign currency).

"The outlook revision on Transgaz follows that on Romania (foreign currency BB+/Stable/B; local currency BBB-/Stable/A-3) on the back of the successful implementation of the latter's fiscal consolidation program to date," said Standard & Poor's credit analyst Tania Tsoneva.

S&P said Transgaz's ratings continue to reflect its strong monopoly position, the relatively predictable cash flows generated by its regulated gas transmission activities, and the company's robust financial profile. These strengths are offset by the risks associated with regulatory reset every five years, an outdated asset base, the company's involvement in the large-scale Nabucco pipeline project, and some remaining transition-economy features in Romania.

"The stable outlook reflects our view that Transgaz will maintain low debt leverage and solid cash flow protection," S&P said.

In S&P view, Transgaz will remain focused on regulated gas transmission, and maintain an adequate operational performance, low leverage, and solid cash flow protection.

Some pressure on Transgaz's ratings might result from uncertainties relating to the size and financial arrangements of its investment in the Nabucco pipeline. These arrangements, once known, could in our opinion substantially impair Transgaz's financial risk profile in the absence of tangible state support, according to S&P.

"We assume, however, that financial outlays on the project will be limited until the project's legal and financial framework is in place, which we understand should happen toward the end of 2010 at the earliest," it said.

Additional factors that could put pressure on the ratings include an inability to execute, or a delay in executing, Transgaz's mandatory investment program, and/or material overruns in capex or operating costs.

"A negative rating action on the sovereign would, in all likelihood, lead to a downward revision of our ratings on Transgaz. Any evidence of diminished state support generally and in reference to the state's involvement in the Nabucco project, might lead us to revise our approach to the assumed level of state support," S&P also said.

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