Czech energy group EPH is continuing its acquisition trail with assets this time picked up in Hungary. The diversity of recent acquisitions puzzles many, but the Czech group is still borrowing big time at fairly low rates of interest.
After a pause for breath, Czech energy group Energetický a Průmyslový Holding (EPH) announced the continuation of its Europe-wide acquisition run on Tuesday.
Daughter company EP Energy has sealed a deal with the Hungarian unit of French power giant Électricité de France to buy majority 95.6 percent stake in the company owning three Hungarian heat and power plants. The plants, grouped together under the company Budapest Eromu Zrt, have a combined electricity production capacity of 406 MW and heat production capacity of 1182 MW. Together, the plants at Kelenföld, Újpest, and Kispest furnish around 60 percent of Budapest’s heat demand and around 3% of Hungary’s electricity needs. They switched to natural gas away from coal and oil in the 1960s and 1970s.
Although EPH owns stakes in 40 companies in the Czech Republic, Slovakia, Germany, Italy, Britain, and Poland and is the biggest heat and power company in the Czech Republic, Hungary has hitherto been something of a backwater for it.
The Hungarian market has recently been a turnoff for major power companies as the government of Viktor Orban has sought to squeeze their profits through dubious regulatory moves and special taxes and reverse the widespread utility privatisations that took place in the last 20 years. German energy company RWE notably sold up its near half share in Budapest’s gas distribution company. State electricity producer MVM has pushed to boost its national profile and buy out minority shareholders where appropriate.
EPH in January purchased seven power plants in Italy, six gas-fired and one coal-fired, after two months earlier sealing a deal to take over the massive but aged Eggborough coal-fired power plant in England.
The mix of acquisition and the debt that both parent company EPH and daughter company EP Energy are stacking up has caused many to scratch their heads. The ratings agency Fitch confirmed its evaluation of EP Energy back in May. But it cautioned at the same time that it saw little room for improvement in the rating due to continued weak Czech power prices and the weakness of the Czech crown against other currencies.
Regulatory changes, such as the threatened but now apparently averted coal tax in Germany, might have caused the rating to be cut, it added. On the flip side, it says the company’s earnings are fairly stable and supported by its low cost lignite mining and long-term coal supply contracts, low-cost and subsidised cogeneration supplies, and regional power monopolies. The main worry for EPH appears to steam from its half share in Slovakia gas pipeline company Eustream and the risk that Russia will stop shipping all gas through Ukraine and onwards through Slovakia.
The latest deal still needs to be cleared by Hungary’s competition authority and the French Ministry of Economy.