MOODY'S PLACES DANGAS'S Aa3 RATING UNDER REVIEW FOR POSSIBLE DOWNGRADE AS IT PLANS TO TAKE OVER RESPONSIBILITY FOR NATURGAS SYD'S DEBT OBLIGATIONS
Moody's has placed under review for possible downgrade the Aa3 debt rating of Dansk Naturgas AS (Dangas), the wholly-owned subsidiary of state-owned Dansk Olie og Naturgas (DONG). The review was prompted by the first reading in the Danish parliament of a law which will allow for the transfer of all the assets of Naturgas Syd (NGS), the Danish regional gas distribution company, to Dangas, which in turn will be required to service indirectly NGS's large amount of debt.
The review will seek to assess the ability of Dangas to meet its increased obligations under various scenarios. At the same time, it will consider the likely impact on Dangas of the liberalisation of the Danish gas supply market in the context of wider EU gas deregulation, and take into account the ongoing importance to the Danish Government of Dangas and the natural gas sector as a whole. The review will also look at the consequences of the potential take-over by Dangas of further regional distribution companies.
The move to transfer NGS's assets to Dangas follows the February 1999 announcement that the Danish Government would seek to take over NGS and merge it with Dangas, after NGS's municipal owners agreed to sell the company to the Government. While Dangas will not take on NGS's debt directly, it will become responsible for all of NGS's debt obligations, both interest and capital. Dangas will transfer these amounts to NGS as they fall due. NGS carries a considerable debt burden (at the end of 1998 it had some DKK 4.6 billion vs. just over DKK 700 million of operating cash flow during that year). Against the background of Dangas's increased debt service requirements, Moody's will review the cash flow potential of the enlarged entity.
Dansk Naturgas, headquartered in Horsholm, Denmark, owns and operates the Danish gas transmission system and purchases gas under long-term contracts which it sells both domestically and internationally. Naturgas Syd, located in Vejen, Denmark, is one of the five gas distribution companies set up by the Danish municipalities in 1979 as part of the Danish Gas Project.
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