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Announcement:

Moody's affirms Enel OGK-5's ratings; outlook stable

08 Dec 2009

London, 08 December 2009 -- Moody's Investors Service has today affirmed the corporate family rating of OJSC Enel OGK-5 ("Enel OGK-5"), the Russian wholesale thermal power generator, at Ba3. The rating outlook is stable. At the same time, Moody's Interfax Rating Agency, which is majority owned by Moody's, affirmed the company's Aa3.ru national scale rating.

The rating affirmation considers Enel OGK-5's relatively high business risk profile as a wholesale thermal power generator operating in the still developing regulatory and market framework of the Russian power sector, and, more broadly, immature domestic operating environment, with risks heightened by the currently weak economic conditions. The affirmation also considers the company's reasonably sustainable financial performance, medium-term financial prospects and liquidity profile and advantages of its shareholder structure, which is dominated by the Italian leading utility Enel SpA ("Enel", rated A2/Negative, controls a 55.86% stake in Enel OGK-5) and has included the Russian government (rated Baa1/Stable) as a blocking shareholder (a 26.43% stake).

Moody's expects the company to exhibit leverage at around 3.0x Debt/ EBITDA at end-2009 and materially decreasing going forward, with FFO interest and debt coverage unlikely to deteriorate below 3.5x and 20%, respectively, under reasonable scenarios for the next few years (the credit metrics incorporate Moody's standard adjustments). The scenarios factor in the company's balanced and well-spread RUB52 billion investment programme for 2009-2013, with a peak investment in 2009. Enel OGK-5 is expected to materially reduce negative free cash flow the coming years.

Moody's takes comfort from the company's good access to both the domestic and foreign financial markets, including its long-term facilities with the EBRD and ABN-Amro Bank to fund the investment programme, which supports the company's liquidity position. A sizable cushion under bank covenants is positively incorporated into the liquidity assessment. Given a material share of the foreign currency debt in the company's total debt, the agency notes the company's foreign currency exposure. However, the agency expects the company to continue to manage prudently its liquidity profile, based also on available support from its controlling beneficiary shareholder Enel.

Moody's has observed the evolution of Enel OGK-5's shareholder structure and interaction between its key shareholders, namely Enel and the Russian government, over the past few years. The agency notes the control and sustainable dominance over the company established by Enel and the co-operating attitude towards this dominance demonstrated by the Russian government. Moody's also takes into account that so far direct involvement of the Russian government is being transformed now into indirect participation via the InterRAO holding, which is to receive under its management the government's stake in Enel OGK-5.

As a result, Moody's has decided that it would no longer classify Enel OGK-5 as a government-related issuer (GRI) under Moody's rating methodology for GRIs. However, this decision has no rating implications for Enel OGK-5 and contributes to the latter's ratings affirmation. Moody's considers that the assumption of potential shareholder support, which provides uplift to the company's B1-equivalent standalone credit assessment by one notch to the Ba3/Aa3.ru rating, remains appropriate in the context of Enel as the controlling shareholder.

The previous rating action on the company was implemented on 4 April 2007, when Moody's assigned Loss Given Default Assessments in EMEA for speculative-grade corporate families, including Enel OGK-5 (named OGK-5 at that time). On 16 July 2008, following the change of the outlook on the Russia's sovereign rating, Moody's said that the ratings and outlook of a number of Russian government-related issuers, including Enel OGK-5 (named OGK-5 at that time), were unaffected.

The principal methodology used in rating Enel OGK-5 was Moody's rating methodology for Unregulated Utilities and Power Companies, published in August 2009, and available on www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.

Enel OGK-5 (former OGK-5) is one of Russia's six wholesale thermal power generation companies established as part of the restructuring of RAO UES of Russia ("RAO UES"), the Russian state-controlled dominant integrated electricity group, which ceased to exist in July 2008. The company, named OGK-5 until late June 2009, was a pilot power generator spun off in the course of the RAO UES restructuring. Enel OGK-5 is controlled by leading Italian electric utility Enel SpA via Enel Investment Holding B.V., which owns a stake of 55.86% in the company. The Russian government, represented by the Federal Property Agency, has directly owned 26.43% of Enel OGK-5. Enel OGK-5 has four fossil fuel-fired plants with total installed capacity of 8.7GW located in the central part of Russia, in the Urals and in the south of the country. The company posted 2008 revenues of RUB42.8 billion (US$1.7 billion), with electricity and capacity sales accounting for around 95% of the revenues.

NATIONAL SCALE RATINGS

Moody's Interfax Rating Agency's National Scale Ratings (NSRs) are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks. NSRs in Russia are designated by the ".ru" suffix. NSRs differ from global scale ratings, as assigned by Moody's Investors Service, in that they are not globally comparable to the full universe of Moody's rated entities, but only with other rated entities within the same country.

ABOUT MOODY'S AND MOODY'S INTERFAX

Moody's Interfax Rating Agency (MIRA) specialises in credit risk analysis in Russia. MIRA is controlled by Moody's Investors Service, a leading provider of credit ratings, research and analysis covering debt instruments and securities in the global capital markets. Moody's Investors Service is a subsidiary of Moody's Corporation (NYSE: MCO). Further information is available at www.moodys.com.

London
Monica Merli
Managing Director
Infrastructure Finance
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moscow
Ekaterina Botvinova
Vice President - Senior Analyst
Infrastructure Finance
Moody's Eastern Europe LLC
Telephone: +7 495 228 6060
Facsimile: +7 495 228 6091

Moody's affirms Enel OGK-5's ratings; outlook stable
No Related Data.
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