Moody's Affirms CEZ's Baa1 Rating and Changes Outlook to Positive

Moody's Investors Service has affirmed the Baa1 senior unsecured debt/senior unsecured MTN program ratings of CEZ, a.s. and the baa2 Baseline Credit Assessment of the company. The outlook on the ratings has been changed to positive from negative. This decision reflects the substantial removal of CEZ's business profile of a potentially significant exposure to new nuclear plant construction.

Key Takeaways:

• CEZ's acquisition of EDU II, a vehicle set up to handle construction of the country's two new nuclear plants, by the Czech Government has resulted in CEZ recovering approximately CZK3.6 billion, to be paid in 2026, for its equity share in EDU II.
• CEZ will retain a 20% ownership stake in EDU II, but its involvement in the construction of the two new nuclear reactors will be limited to advisory and various other services managed by service contracts.
• The funding of the projects will immediately start using EDU II bridge financing until the Government funded repayable financial assistance mechanism is finally approved for both reactors.
• CEZ's rating affirmation reflects the removal of substantial construction and commissioning risks associated with the EDU II plants.
• CEZ is likely to maintain a financial profile commensurate with the current rating / BCA, namely Funds from operations (FFO)/net debt at least in the low 20s and retained cash flow (RCF)/net debt at least in the mid-teens in percentage terms.
• The positive outlook on CEZ reflects the Government's continued focus on CEZ's financial profile and policy to put CEZ in a position where it can manage the energy transition and associated investment in Czechia.
• CEZ's rating reflects a view on its standalone credit quality evidenced by a BCA of baa2 and a one-notch lift to reflect the probability of government support should this be required.
• A one-notch higher uplift reflecting increased probability of Government support in an adverse situation could be warranted once the transaction is completed and appears unlikely to be reversed.
• CEZ will largely deploy its investments into a combination of capital expenditures allocated to its distribution network and further deployment of incremental renewable and gas capacity.
• CEZ's Baa1 rating / baa2 BCA continues to reflect its leading position in the Czech electricity market and well-balanced vertical integration.

Statistics:

• CEZ to recover approximately CZK3.6 billion in 2026 for its equity share in EDU II.
• CEZ's EBITDA accounted for 73% by its merchant power generation and mining segment in 2024.
• FFO/net debt of at least in the low 20s and RCF/net debt of at least in the mid-teens in percentage terms expected for CEZ.
• 20% ownership stake in EDU II retained by CEZ.
• CZK3.6 billion to be paid in 2026 for EDU II equity share.

Sources:

• Moody's Ratings (Moody's)
• Moody's Investors Service
• Government of Czech Republic (Aa3 stable)
• Czech Government