Fitch reports Italy's water sector insulated from pressures that hit national rating

Fitch Ratings has reported that its recent affirmations of Italian energy utilities at above the nation’s sovereign rating, “reflect factors that insulated them from the pressures that led to Italy's sovereign downgrade last month.”

Fitch said while a weakening Italian economy could up political and social pressure on utilities “to share the burden of the crisis with their customers,” it emphasised it that “their strategic role and sizeable capital expenditure plans mitigate the risk of material unexpected cuts to their returns.”

Fitch said water service group Acea should face a “manageable impact” on its financials, from weaker economic conditions as it derives around 80% of its underlying earnings from “stable regulated activities.”

Energy giant Enel was insulated by it geographic diversity. Energy network firms Snam, Terma and Italgas “lack any meaningful exposure to price and volume risks, and are supported by good regulatory visibility.” It said they had “operated as normal during the coronavirus crisis, and their regulatory visibility is supported by the 25-year record of Italian regulator ARERA.”

Fitch said it would not automatically downgrade Italian utilities if Italy's rating were to be cut further, but would continue to monitor them. “The utilities' ratings could continue to withstand the crisis only if we do not expect their credit profiles to be materially affected by deteriorating macroeconomic conditions, a weaker financial system and possibly a less-supportive regulatory framework,” said Fitch