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28 Oct 2004
MOODY'S ASSIGNS (P)A3 RATING TO SPI ELECTRICITY & GAS AUSTRALIA'S US$ AND A$ MTN PROGRAMS; OUTLOOK STABLE
Sydney, October 28, 2004 -- Moody's Investors Service has assigned a prospective A3 long-term
senior unsecured rating to the US$1.5 billion medium term
note program and the A$2 Billion MTN program to be established
by SPI Electricity & Gas Australia Holdings Pty. Ltd.
(SPIEG). The outlook on the rating is stable.
The prospective A3 ratings are based on information provided to Moody's
as of October 28, 2004 and assumes that this information will not
change materially. Definitive ratings will be assigned when the
programs are established and the notes issued. Moody's expects
the drawdowns from the programs to go towards re-financing existing
debt and to fund general corporate purposes.
SPIEG's fundamental credit profile reflects the stable and predictable
nature of its gas and electricity network activities -- which contribute
to more than 60% of total EBITDA -- and its Energy Business
(EB) -- which accounts for the rest. Revenue levels for its
distribution businesses are set by the Victorian regulator, the
Essential Services Commission, for five-year periods.
The company's EB comprises electricity generation, gas storage,
hedging and retail energy sales.
SPIEG has a portfolio of assets which allows for effective hedging against
the volatility evident in wholesale electricity prices. In addition,
the portfolio allows the company to take advantage of price moves in electricity
and gas in a manner which preserves its overall risk profile.
The A3 rating further considers an uplift from SPIEG's fundamental
credit profile due to the stronger credit profile of its parent and the
support the company may receive if it were to encounter financial difficulties.
At the same time, Moody's notes SPIEG is highly leveraged
for its A3 rating. The company is expected to demonstrate --
following its acquisition by Singapore Power -- the following financial
metrics: Funds From Operation/Interest of about 3 times, Debt/EBITDA
of about 5 times, and Debt/Capitalisation of about 64%.
Furthermore, it has committed over the next four years to reduce
debt at the expense of dividend pay-outs.
Positive rating pressure could evolve over time if material deleveraging
occurred. Indicators that Moody's would look for in this respect
are the following financial metrics : FFO/Interest approaches 4
times, Debt/EBITDA at or near 4 times and Debt/Capitalisation equals
55%. On the other hand, the rating will come under
negative pressure if FFO/Interest falls below 2.5 times,
Debt/EBITDA is more than 6 times and Debt/Capitalisation exceeds 70%.
In addition negative ratings pressure will result if there is a renegotiation
of the hedge book which materially increases risk or if SP pays material
dividends prior to 2008.
In addition, Moody's understands that Singapore Power has made various
confidential undertakings to the regulator, the Australian Competition
and Consumer Commission, in respect of its acquisition of TXU Corp's
Australian assets. However, Moody's believes that SPIEG's
management -- along with the financial flexibility accompanying ownership
by Singapore Power -- will prove capable of managing these undertakings
in a disciplined manner.
SPIEG is formerly TXU Australia Holdings Pty. Ltd. The TXU
Australia group of companies was acquired by Singapore Power in July 2004.
SPIEG is an integrated energy company based in Melbourne, Australia.
Clement K. Chong
Corporate Finance Group
Moody's Investors Service Pty Ltd
612 9270 8100
Corporate Finance Group
Moody's Investors Service Pty Ltd
612 9270 8100
No Related Data.
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