SAO PAULO (S&P Global Ratings) July 21, 2021--S&P Global Ratings said today that mid-year results of Brazil-based integrated electric power group Neoenergia S.A. (global scale: BB-/Stable/--; national scale: brAAA/Stable/brA-1+) are on track to meet our expectations. Neoenergia's rolling 12-month adjusted net debt to EBITDA and FFO to debt were 5.1x and 14%, in the second quarter, respectively. Both metrics slid because of higher energy costs, given that most of the country's thermoelectric plants are dispatching more expensive energy due to drier conditions. But we expect both metrics to reach 4.0x-4.5x and 15%-20%, respectively, by year-end, which are still in line with our view of Neoenergia's financial risk profile as aggressive.
More leveraged ratios in the second quarter also stem from higher debt to incorporate the recently acquired distribution company, Neoenergia Distribuição Brasília (previously known as CEB; not rated). Nevertheless, we expect Neoenergia to meet our 2021 forecast thanks to recovery in energy demand and the recent high-single digit tariff adjustments among most of the group's distributors. In addition, we expect the tariff flag system to continue help balancing the distributors' working capital requirements. The group reported a 12.3% increase in electricity consumption in the second quarter of 2021 compared with the same quarter last year (in the first six months of 2021, the rise was 8.1%).
During the next two years, Neoenergia will continue to integrate its recently acquired energy distributor, while executing its sizable capex, including the construction of several transmission lines and renewable generation capacity, and the expansion and improvement of its distribution network across all of its concession areas.
This report does not constitute a rating action.
|Primary Credit Analyst:||Bruno Ferreira, Sao Paulo + 55 11 3039 9798;|
|Secondary Contacts:||Vinicius Ferreira, Sao Paulo + 55 11 3039 9763;|
|Marcelo Schwarz, CFA, Sao Paulo + 55 11 3039 9782;|
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