Standard & Poor's Ratings Services said today that it had revised its outlook on Malta-based electricity utility Enemalta PLC to positive from stable. The 'B+' long-term corporate credit

rating was affirmed.

The outlook revision stems from a similar action on our long-term rating on Malta on July 10, 2015 (see "Outlook On Malta Revised To Positive On Economic  Growth And Fiscal Consolidation Prospects; 'BBB+/A-2' Ratings Affirmed,".

Our rating on Enemalta incorporates three notches of uplift for government  support, reflecting our view that there is a "very high" likelihood of timely  and sufficient extraordinary support for Enemalta from the government if  needed. This is based on our view of the company's:

• "Very important" role as the sole owner and operator of Malta's power distribution grid, which was connected to Europe in spring 2014 through a cable linking the island to Sicily. We could revise this assessment after the construction of a new third-party gas-fueled generation facility in Malta is completed; and
• "Very strong" link with the Maltese government. The government's recent sale of a minority stake in Enemalta doesn't affect our assessment. Although we observe that the government continues to provide full and timely support to Enemalta if needed, we think it aims to gradually reduce its guarantees on most of Enemalta's debt, which would reduce the sovereign's exposure to contingent liabilities.

We assess Enemalta's stand-alone credit profile (SACP) at 'ccc+'. Therefore,  the Maltese government's improving credit quality has an impact on our  long-term rating on the company.

Our view of Enemalta's SACP is unchanged. We see some momentum in the roll out  of the government's energy reform, which we believe will be positive for  Enemalta's future development. However, we continue to assess the company's  business risk profile as "vulnerable" and its financial risk profile as  "highly leveraged," pending the return to positive cash flow generation.

The positive outlook on Enemalta reflects the outlook on Malta.

We would raise the rating on Enemalta by one notch if Malta is upgraded by one  notch, barring no change to the "very high" likelihood of extraordinary  government support, or if we believed the company's ongoing restructuring  would enable it to achieve financial stability in the long term. This could  occur if Enemalta generated positive operating cash flow on a sustainable  basis and posted at least neutral free cash flow, which is not imminent, in  our view.

We could lower the rating on Enemalta if we perceived a delay to the full  conversion of Malta's power generation system to gas, forcing Enemalta to  continue its current oil-fired generation operations. We consider that such a  delay would jeopardize the stabilization of Enemalta's cost base.

We could also downgrade the company if the government decided to further trim  power tariffs to a level that would make it challenging for the utility to  recover costs, or if Enemalta's shareholders adopted a very aggressive policy  that would undermine the likelihood of sustainable deleveraging.