MOODY'S ASSIGNS PRIME-1 COMMERCIAL PAPER RATING TO FINNISH POWER GRID PLC
New York, 06-04-98 -- Moody's Investors Service has assigned a Prime-1 short-term rating to Finnish Power Grid plc ("Fingrid") for its US$ 600 million Euro Commercial Paper Programme. The rating reflects the low business risk of Fingrid as the national electricity transmission monopoly, together with our expectation of a supportive regulatory framework which will confer stability of earnings despite a highly leveraged financial profile. The short-term rating is further supported by an adequate level of alternate liquidity.
Fingrid was established in 1997 out of the transmission assets of Finnish electric utilities IVO and PVO, which each retain a 25% shareholding in Fingrid and 33% of the voting rights. The State and institutional investors own the remaining shares. Fingrid was incorporated with high leverage - approaching 80% - in order to reduce its cost of capital and hence offer the lowest possible tariffs to its customers, which include IVO and PVO. Accordingly, cashflow interest coverage is relatively low, mitigated by the flexibility of the regulatory framework which should enable coverage levels to be maintained. Fingrid is able to set its own tariffs to reflect costs plus a "reasonable profit", which allows the company to pass cost increases through to customers. Since transmission costs represent well under 10% of end-user prices, tariff increases should be achievable if needed. In practice however, Moody's expects that further cost savings will enable to company to reduce its tariffs over time.
While the independent regulator's activities are expected to evolve, Fingrid's strategic role in providing a reliable network is vital, and it is considered unlikely that the financial strength of the company will be allowed to deteriorate. Moody's discussions with the Government indicate that it accepts the need to maintain Fingrid's financial profile. This support is evidenced by the State's share ownership (both directly and through IVO) and the relatively light regulatory framework. Financial flexibility is also enhanced by considerable discretion to delay or curtail capital expenditure, given the high quality of the existing infrastructure, which will also keep future borrowing needs at a moderate level.
Finnish Power Grid plc is headquartered in Helsinki, Finland, and owns and operates the high voltage electricity transmission grid, together with the interconnections with Norway, Sweden and Russia.
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