Hidroelectrica Insolvency "affects the executive situation"

Hidroelectrica entrance in insolvency adversely affects the financial position of executive and implicitly the credit profile of Romania, as the company increases the likelihood to repay debts to the state budget and delay privatization; it is said in an analysis by Moody's rating agency.

The rating agency also notes that the entrance into insolvency of Hidroelectrica company establishes a precedent that creates uncertainty among creditors other state companies in Romania.

Last week Moody's downgraded the Hidroelectrica rating four steps to "B2" with negative outlook.

Moody's assigns Romania the rating "Baa3" rating with stable outlook, the last step in "investment grade" of issuers with long-term investment recommendation.

"Moreover, the official motivation of the company for insolvent declaration is the reorganization, and not bankruptcy, which suggests that the eventual measures less extreme of reorganization either were not considered or were not possible, which indicates deficiencies in the institutional company, within the operating environment, or both, "says the Moody's report.

Bucharest Court admitted on June 20 the insolvency proceedings if Hidroelectrica, requested on June 15.

Although Hidroelectrica says it will respect contracts during the insolvency proceedings and restructuring, which could take about a year and a half, Moody's warns that neither the company nor the executive have specifically said how they will made ​​payments to creditors, so that insolvency increases the risk of default.

Profits down at constant income

The rating agency shows in the analysis made that the call for input from an insolvent state-owned company reflects adversely on the credit profile of Romania, creating uncertainties and setting a precedent in the eyes of other creditors and trading partners of state companies in Romania.

Even if creditors will not lose anything, insolvency increases the likelihood that the government will be forced to pay about $ 70 million in company debt, representing, according to Moody's estimates, the amount guaranteed by the state.

"The amount is not large compared to government debt of 58 billion dollars, but the total debt of Hidroelectrica, which we estimate at about 725 million dollars, is a significant risk to the state if the government decides to provide financial support to the company during the insolvency proceedings, "says Moody's analysis.

According to the company balance sheet, net profit fell 45 times last year, from 292.3 million lei, to 6.4 million, while the total revenue dropped from 3.41 billion lei to 3.18 billion lei, while expenditures have increased from 3.02 to 3,140,000,000 lei.

Short-term debts rose with 900 million in 2011 from 1.7 billion to 2.6 billion, of which with 400 million from banks (total 1.1 billion lei), and 250 million lei suppliers (total 1.12 billion lei).

Long-term liabilities also known an increase of over 200 million to 1.5 billion lei, of which 1.42 billion lei are obligations to banks.

Translated by Alexandra-Diana Mircea

MTTLC, Bucharest University