Standard & Poor's lowers Caruna's credit rating

Press release Wed, 02/23/2022 - 15:33
International credit rating agency Standard & Poor's (S&P) lowers electricity distribution company Caruna's credit rating from "BBB+; Credit Watch Negative" to "BBB; Outlook Stable". The drop is due to the exceptional changes made to the regulation model during the regulatory period for electricity distribution companies, which led S&P to reassess the Finnish regulatory framework for DSOs from "strong" to "strong/adequate" and to change the credit rating. The changes therefore weaken the industry's financial position and prospects in the eyes of international investors.

S&P justifies the weaking of prospects by the large decrease in the market value of employed capital and the reasonable return under the regulation model. According to S&P, the changes lower the assessment of the Finnish regulatory framework from "strong" to "strong/adequate". In addition, the agency assesses that the risk of similar unexpected, negative changes has increased.

Finland's political operating environment and electricity distribution regulation have traditionally been seen as highly predictable, which has ensured low risk and thus cost-effective financing for electricity network development. This has been reflected in a lower risk premium than the rest of the market and other countries in the cost of financing of capital employed.

"Electricity distribution is a highly capital-intensive sector, and Caruna has loans of EUR 3.3 billion, or approximately EUR 5,000 for every 700,000 or so customers. These types of unexpected changes in the regulation model decrease investments in Finland, which weakens the industry's ability to create jobs. At the same time, the changes will have a negative impact on future financing costs and thus on the cost of network operations," says Jyrki Tammivuori, Deputy CEO and CFO of Caruna.

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