Fitch Ratings has affirmed
The Outlook on the IDRs is Stable. Fitch has also affirmed NGG's senior unsecured debt rating at 'A-'. A full list of ratings is detailed below.
The rating affirmation is supported by the group's adequate capital structure, low-risk and predictable regulated cash-flow generation and our expectation of adherence to the dividend and financial policy of the new consortium, supported by a deed poll.
On
Key Rating Drivers
Adequate Protection in Capital Structure: The financing structure comprises senior unsecured debt issued at NGG's level, where bondholders benefit from restricted payments outlined in a deed poll published
Comfortable Rating Headroom: Fitch expects NGG's target gearing to be well within our RAV-based negative rating sensitivity of 72%, with comfortable headroom. We expect NGG's average cash and nominal post-maintenance interest coverage ratios (PMICRs) to be above their negative rating sensitivities during the current price control period of RIIO-GT2.
Standalone Assessment under PSL: We rate NGG and NGGH on a standalone basis, reflecting their ring-fencing from entities holding additional acquisition debt and the nature of the new ultimate shareholders. We view legal ring-fencing under our Parent and Subsidiary Linkage (PSL) Rating Criteria as 'insulated', reflecting a well-defined regulatory framework, deed-poll provisions and a financial policy explicitly designed to support NGG's financial profile. We view access and control as overall 'porous' as NGG operates autonomously with separate cash management and all non-equity funding external.
Derivation Summary
NGG is rated at the same level as western European gas transmission operator,
We view NGG as qualifying for sector-specific recovery uplift for its debt, and its senior unsecured debt is thus notched up once from its IDR.
Key Assumptions
Our Rating Assumptions within our Rating Case for the issuer:
RPI of 10.5% for FY23, gradually decreasing to about 3.4% by FY25
CPIH of 8.2% for FY23, gradually decreasing to about 2.4% by FY25
Majority of the
Revolving credit facility (RCF) increased to
Average cost of debt of 3.1% for FY22-FY26 (fixed- and floating-rate and indexed-linked nominal debt)
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
NGG:
A decline in RAV-based gearing to below 64% on a sustained basis
Cash PMICR above 1.9x, or nominal PMICR above 2.1x
NGGH:
Positive rating action on NGG is likely to lead to similar rating action on NGGH, accompanied by no material debt at NGGH
Factors that could, individually or collectively, lead to negative rating action/downgrade:
NGG:
RAV-based gearing above 72% on a sustained basis
Cash PMICR below 1.6x, or nominal PMICR below 1.9x
NGGH:
NGGH would be downgraded if it issues any external third-party debt, including drawdown of its own liquidity facilities. This would reflect the structural subordination of NGGH's creditors to NGG's
Negative rating action on NGG is likely to lead to similar rating action on NGGH
Best/Worst Case Rating Scenario
International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
Liquidity and Debt Structure
Adequate Liquidity: At FYE22, NGG had about
Fitch expects sufficient liquidity in FY23 to cover short-term debt maturities, supported by NGG's upsized RCF of
Issuer Profile
NGG owns and operates the regulated gas national transmission system in
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
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