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(Alliance News) - Moody's Investors Service on Tuesday affirmed its Baa2 ratings for Centrica PLC but shifted its outlook to negative, amid a "persistently challenging" environment for the British Gas owner.
The credit ratings agency said the rating affirmation follows Centrica's announcement last Friday that it has agreed to sell its North American energy supply, services and trading business Direct Energy to NRG Energy Inc for USD3.6 billion.
Moody's said the Baa2 rating affirmation recognises Centrica's leading market position in the UK energy supply segment, a well-established brand and market position in the services division in the UK, the company's track record and stated commitment to strong credit quality, and good liquidity.
Turning to its outlook decision, Moody's said: "The change in outlook to negative thus takes account of Centrica's evolving business risk profile and the uncertainty regarding the final shape of the group and its financial profile - as the company pursues its strategy to divest Spirit Energy and nuclear interest in the context of persistently difficult operating environment."
In July, Centrica said it plans to sell some businesses including its exploration & production and nuclear power businesses. While the disposals of the Spirit Energy E&P business and its nuclear interest were expected to complete by the end of 2020, both processes have been delayed and are currently paused due the fall in energy prices and the hit to asset prices caused by the virus pandemic, the company said.
Moody's said that while the disposals will lead to a simpler and leaner corporate structure, they also will erode Centrica's scale and diversification. It added that the spread of Covid-19 has also resulted in a reduction in electricity demand from business customers because of restrictions to business activity, and the fall in energy prices reduced Centrica's earnings by around
GBP425 million in the first half of 2020.
It noted that while Centrica remains focused on actions to preserve cash flows and has so far not reported any deterioration in its bad debt situtation, the outlook for the business remains uncertain.
As of end-June 2020, Centrica's net debt stood at GBP2.8 billion.
Shares in Centrica were down 1.6% at 49.68 pence each on Thursday in London.
By Ife Taiwo; ifetaiwo@alliancenews.com
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