Investing.com -- According to Moody’s Ratings, the proposed privatization of ENN Energy Holdings Limited by ENN Natural Gas Co., Ltd. (ENN NG) is seen as credit positive for ENN NG’s business profile. The announcement was made on March 26, 2025, and Moody’s stated that it would not immediately affect the companies’ ratings.

Ivy Poon, a Moody’s Ratings Vice President and Senior Credit Officer, noted that if the privatization is completed as planned, ENN NG will gain full control over ENN Energy, its main source of cash flow. This control would address a key credit challenge for ENN NG’s Baa3 rating, which has been the lack of majority control over ENN Energy.

However, the transaction could lead to uncertainty regarding potential changes to ENN Energy’s distribution policy, financial management, and corporate governance once it becomes a wholly owned subsidiary. This could increase the risk of potential cash leakage from ENN Energy to ENN NG.

Should the transaction proceed as planned, ENN NG’s business profile would be enhanced through integration across its entire city gas distribution value chain. This would maximize business synergies and improve cost efficiency. As of December 2024, ENN NG held a 34.28% stake in ENN Energy. In 2024, ENN Energy accounted for 71% of ENN NG’s gross profit on a consolidated basis.

ENN NG has proposed to privatize ENN Energy by acquiring a 65.72% stake in ENN Energy through a scheme of arrangement. The cancellation consideration for each scheme share consists of 2.9427 ENN NG H-shares and a cash consideration of HKD24.50. The maximum cash consideration is around HKD18.4 billion after considering the outstanding share options. ENN NG plans to fund the cash component primarily through debt. The transaction is subject to precedent conditions including approvals from shareholders, regulators, and stock exchanges, and is expected to close on March 26, 2026.

Moody’s estimates that ENN NG’s projected metrics will temporarily weaken in 2026 and gradually improve from 2027 onwards, assuming the cash consideration is primarily debt-funded. Its funds from operations/debt and retained cash flow/debt are expected to range between 31%-35% and 18%-21% on a consolidated basis during the projected period, compared to 48% and 30% in 2024. These projected metrics are considered strong for a typical Baa3 issuer in the regulated electric and gas industry. Moody’s will reassess ENN NG’s rating tolerance levels to reflect the improved business risk profile if the privatization is completed as planned.

Moody’s does not expect the proposed transaction to substantially impact ENN Energy’s financial profile. However, the risk of potential cash leakage from ENN Energy to ENN NG will be assessed after ENN Energy becomes a wholly owned subsidiary and delists from the Hong Kong Stock Exchange. The credit impact on ENN Energy will be reassessed when there is more clarity on potential changes in distribution policy, financial management, and corporate governance.

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