Press Release

DBRS Morningstar Assigns Issuer Rating of A (low), Stable Trend, to Západoslovenská energetika, a.s.

Utilities & Independent Power
November 09, 2023

DBRS Ratings GmbH (DBRS Morningstar) assigned an Issuer Rating of A (low) with a Stable trend to Západoslovenská energetika, a.s. (ZSE or the Company).

ZSE´s Issuer Rating is supported by the following key factors: (1) it is the largest distributor system operator (DSO) in Slovakia, holding a monopolistic position in Western Slovakia; (2) its regulated activities, which account for approximately 90% of total EBITDA; (3) its predictable and stable cash flow generation; and (4) the implicit sovereign support from the Slovak Republic. However, ZSE´s Issuer Rating is constrained by: (1) its limited geographical footprint, (2) high energy price volatility for its nonregulated business; (3) aggressive dividends, and (4) operational risk. The Stable trend reflects DBRS Morningstar’s view that ZSE´s key financial metrics will remain supportive of a AA (low) threshold for the foreseeable future.

ZSE, the largest of the three DSOs in Slovakia, distributes electricity and supplies energy to retail and wholesale customers in the country. The Company, which is majority owned by the Slovak Republic (51% stake), holds a monopolistic position in the distribution business for Western Slovakia and maintains a 50% market share throughout the country, with 1,016,350 electricity supply points and 94,546 gas supply points as at the end of 2022. In addition to two small hydropower plants, the Company owns one steam-gas power plant near Malženice, which has an installed capacity of 436 megawatts.

The credit rating is supported by the Company´s market-leading position in the Slovakian distribution business, covering 100% of the grid in Western Slovakia, and ZSE’s low business risk profile with around 90% of EBITDA generated from regulated activities (electricity distribution and certain energy supply). The regulatory framework in Slovakia has been in place since 2002, providing stability of cash flow generation as well as a reasonable level of profitability for network operators based on the regulatory asset base. This credit rating assessment benefits from implicit support from the Slovak Republic’s 51% ownership as DBRS Morningstar recognizes the potential support from the government in case of distress given the essentiality of the business for the country and the Slovak Republic’s stake in the Company.

DBRS Morningstar also considers as favourable the diversified funding sources of the Company and the long-term schedule of maturities, subsequent to the refinancing of the EUR 315 million bonds that matured in October 2023. DBRS Morningstar also considered ZSE’s strong credit risk profile. DBRS Morningstar expects the Company to maintain key financial metrics within the AA (low) range, with a conservative dividend policy that allows for positive free cash flow before working capital. DBRS Morningstar also views the Company as having ample liquidity and notes that the announced transaction with Východoslovenská energetika Holding a.s., the principal DSO in the Eastern Slovakia, will likely add strength to ZSE’s market position. However, DBRS Morningstar believes there is a lack of visibility at this time to assess the potential credit impact of the transaction on ZSE’s finances.

Conversely, the credit rating is constrained by the Company´s limited geographical diversification considering almost all of its revenue is generated in Slovakia. ZSE is also exposed to energy price volatility, mainly in its nonregulated business. Energy for electricity generation is mainly purchased from third parties through medium- and long-term agreements and in the spot market.

In 2022, because of reduced electricity generation at its power plant, ZSE had to increase purchases of power from the spot market, which led to a deterioration in profitability. Nevertheless, the Company applies a conservative approach to managing its commodity price exposure by maintaining a limited open position and through back-to-back commodity buying. However, the high volatility can have a significant impact on profitability.

Although ZSE's shareholders announced a conservative dividend policy that supports the Company’s incremental growth and helps maintain the target credit profile for a strong investment-grade rating, the high level of dividends paid during the last four years, with a payout ratio of about 67%, have drained cash flow from operations. At the end of 2021 and 2022, free cash flow before changes in working capital remained negative. ZSE is also exposed to operational risks, which are related to the distribution system operation and management, including failures, unplanned supply disruptions, and compliance with applicable laws.

DBRS Morningstar expects the current credit rating to remain stable over the foreseeable future. Nevertheless, DBRS Morningstar would consider a positive rating action if the Company significantly improves its operating performance by keeping its key financial metrics at the AA (low) threshold or higher. Conversely, DBRS Morningstar would consider a negative rating action if (1) the EBITDA contribution from the Company’s regulated business consistently declines below 80% over the medium term, thereby reducing the stability and predictability of cash flow generation; (2) there were changes to the Company’s financial policy that resulted in increasing gross debt and deterioration in its cash flow-to-debt and debt-to capital ratios, or (2) DBRS Morningstar downgraded its sovereign credit rating on Slovakia.

There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the “DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings” (4 July 2023),

All figures are in euros unless otherwise noted.

DBRS Morningstar applied the following principal methodology:
-- Global Methodology for Rating Companies in the Regulated Electric, Natural Gas, and Water Utilities Industry (27 September 2023),

The following criteria have also been applied:
-- DBRS Morningstar Global Criteria: Guarantees and Other Forms of Support (28 March 2023),

The credit rating methodologies used in the analysis of this transaction can be found at:

A description of how DBRS Morningstar analyses corporate finance transactions and how the methodologies are collectively applied can be found at:

The primary sources of information used for this credit rating include annual reports including audited financial statements, quarterly results reports and presentations, presentation transcripts, publicly available regulatory information. DBRS Morningstar considers the information available to it for the purposes of providing this credit rating to be of satisfactory quality.

With respect to FCA and ESMA regulations in the United Kingdom and European Union, respectively, this is an unsolicited credit rating. This credit rating was not initiated at the request of the issuer.

With Rated Entity or Related Third-Party Participation: NO
With Access to Internal Documents: NO
With Access to Management: NO

DBRS Morningstar does not audit the information it receives in connection with the credit rating process, and it does not and cannot independently verify that information in every instance.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar trends and credit ratings are under regular surveillance.

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: For further information on DBRS Morningstar historical default rates published by the Financial Conduct Authority (FCA) in a central repository, see

The sensitivity analysis of the relevant key credit rating assumptions can be found at:

This credit rating is endorsed by DBRS Ratings Limited for use in the United Kingdom.

Lead Analyst: Laura Gutierrez, Assistant Vice President
Rating Committee Chair: Victor Vallance, Managing Director
Initial Rating Date: 9 November 2023
Last Rating Date: Not applicable as there is no last rating date.

Information regarding DBRS Morningstar credit ratings, including definitions, policies, and methodologies, is available on or contact us at [email protected].

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