Fitch upgrades CEZ

Fitch Ratings said it upgraded Czech Republic-based CEZ AS's foreign-currency issuer default rating to A- from BBB and the notes issued by CEZ Finance BV to A from BBB+. The F2 short-term rating was affirmed, and the outlook is stable.

The agency said the upgrade reflects CEZ's stronger financial profile on the back of its robust free cash flow generation, decreasing financial leverage and healthy and improving EBITDA margin. It also factors in CEZ's improved business profile due to its cost reductions and efficiency improvements in its vertically integrated operations in the Czech Republic. CEZ's net debt to EBITDA ratio improved to 0.4x at the end of 2005 from 1.2x at the end of 2003.

Fitch said the ratings reflect the company's leading position in the Czech power generation, distribution and supply market and the company's low-cost generation assets, including young nuclear plants and lignite-fired plants located close to mines.

Nevertheless, the company has a significant capital expenditure program related to the renewal of its coal-fired generation portfolio and investments in the distribution segment, the agency said, and a considerable part of the free cash flow generated in the medium term is likely to be spent on acquisitions.

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