At the same time, the credit rating agency affirmed its 'BBB' local currency corporate credit rating on the company. The outlook on both ratings is negative.
The foreign currency rating action follows a previous revision of the foreign currency rating on the Republic of Croatia.
S&P said in a statement that the ratings on HEP, which was described as a state-owned, vertically integrated electricity utility, reflected state support. "The company acts as monopoly supplier to a growing market. The ratings are further underpinned by moderate debt. Weaknesses include the lack of a formalised tariff mechanism, significant operational challenges, and liquidity constraints."
"The company is being restructured in preparation for gradual market liberalisation and 49% privatisation," S&P credit analyst Amrit Gescher said. "Although it is expected to maintain close links with the Croatian government for now, the prospect of liberalisation and privatisation and the possibility of Croatia's accession to the EU introduces uncertainty about HEP's future operating environment."