National Grid rating upgrade reflects stronger regulated earnings profile

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National Grid Fitch rating upgrade

Highlights

Fitch upgraded National Grid Plc's Long-Term Issuer Default Rating to 'BBB' from 'BBB-' and NGET to 'A-' from 'BBB+', both with Stable Outlooks.
Fitch projects regulated earnings will reach 95% of revenue by FY31, supported by GBP70 billion capex from FY27-FY31, including GBP40 billion in regulated UK business investment.
Recent major asset disposals generated GBP4.1 billion net cash proceeds over FY25-FY26, improving National Grid's position to manage ET3 investments without further equity raises.

Fitch cites regulated growth and ET3 investment

As reported by Fitch Ratings, National Grid Plc's Long-Term Issuer Default Rating is upgraded to 'BBB' from 'BBB-', while subsidiary National Grid Electricity Transmission plc's rating is raised to 'A-' from 'BBB+'. The senior unsecured ratings are also lifted to 'BBB+' for National Grid and 'A' for NGET, and both entities carry Stable Outlooks.

Fitch says the upgrade reflects a stronger credit profile supported by clear earnings visibility and a rising share of regulated income. It expects regulated earnings to reach about 95% of revenue by FY31, backed by around GBP70 billion of capital expenditure over FY27 to FY31, including GBP40 billion for the group's regulated UK businesses.

The agency forecasts National Grid's funds from operations net leverage to average 6.0x over FY27 to FY31, remaining below its revised negative rating sensitivity of 6.9x. Fitch also says the disposal of several non-regulated businesses and a larger contribution from UK regulated EBITDA improve the group's debt capacity, even as leverage trends upward during the investment cycle.

UK network spending supports sector outlook

NGET's upgrade follows the parent company's higher rating because its credit profile is linked to National Grid under Fitch's parent and subsidiary criteria. Fitch says the UK electricity transmission business has substantial growth opportunities during the ET3 regulatory period, with about GBP32 billion of allowed investment under Ofgem's final determination, of which GBP5.2 billion is core baseline totex and GBP26.8 billion is pipeline spending.

In Fitch's rating case, NGET is assumed to deliver GBP27.3 billion of totex across the period, leading regulated asset value to grow to about GBP45 billion by FY31 from GBP24 billion in FY26. The agency says NGET should stay broadly aligned with its target gearing near the notional 55% level, supported by about GBP750 million of intercompany equity through FY31.

Fitch also says recent disposals strengthen National Grid's starting position before ET3. The group records about GBP4.1 billion of net cash proceeds over FY25 and FY26 from four major asset sales, including Grain LNG and National Grid Renewables for GBP2.8 billion in FY26, and combines that with the FY25 rights issue to help absorb higher capital spending without further equity calls.

Our earlier article on Fitch’s downgrade of VMED O2 UK Limited outlined how high leverage and heavy fibre-network investment were weighing on the company’s credit profile in a highly competitive UK telecom market. We noted Fitch’s expectation that net leverage would stay above 6.0x with weak cash-flow metrics through 2029, even as the pending Netomnia-related transactions could provide only modest deleveraging while adding execution and margin risks.

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