Onshore Power Supply Investments in European Ports: Expected Moderate Impact on Leverage Given High Public Subsidies
Transportation, InfrastructureSummary
The European Regulation requires ships calling at EU ports to gradually reduce their greenhouse gas (GHG) emissions by using cleaner fuels and to connect to an onshore power supply (OPS) when moored at the quayside. To comply with the FuelEU Maritime Regulation (the Regulation), EU ports are required to deploy OPS for larger seagoing container and passenger ships and port operators will have to increase their capital expenditure (capex) to build the necessary infrastructure. We expect that this capex will be partly debt funded. However, given that this capex will be highly subsidized by the EU to incentivise the transition to cleaner energy sources, we expect the increase in leverage in ports to be moderate.
Key highlights:
-- We foresee an increase in growth capex from EU port operators to comply with the Regulation.
-- Overall, we expect the Regulation to have limited impact on the leverage levels of issuers in our rating portfolio given the public subsidies that port operators can apply for, the share of OPS already in place, and the uncomplicated work involved in building OPS.
-- We consider the core EU ports with their well-managed leverage levels to be better placed than smaller ports or ports with already high leverage to carry out the relevant work without impairing their financial strength.
"The issuers in our rating portfolio are well positioned in their current rating categories, and therefore we are not expecting to take any negative rating actions because of the effect of the Regulation on their financing needs--although this will vary on a case-by-case basis" said Ana Relanzon, Vice President, Corporate Ratings. "However, smaller port operators with expected higher cash flow volatility or higher amounts of debt with little buffer could be negatively affected given the expected increase in leverage."
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