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Announcement:

Moody's places ratings of Portuguese government related issuers on review for downgrade

21 Dec 2010

London, 21 December 2010 -- Moody's has today placed the following ratings on review for possible downgrade, (1) the A2 rating of ANA-Aeroportos de Portugal, S.A, ("ANA"), (2) the A3 rating of Comboios de Portugal ("CP"), (3) the A1 rating of Parpública-Participacoes Publicas (SGPS), SA, ("Parpública"), (4) the A1 rating of Rede Ferroviaria Nacional REFER, EPE, ("REFER") and (5) the A3 rating of Redes Energeticas Nacionais, SGPS, S.A. ("REN"). In addition, the A3 rating of Energias de Portugal, S.A. ("EDP") and its finance subsidiary, EDP Finance B.V., and the provisional Baa2 rating of the proposed issuance of Subordinated Fixed to Floating Rate Notes by EDP, have been placed on review for downgrade. The Prime-2 rating of EDP and EDP Finance B.V is affirmed.

All of the above companies are government related issuers which have an element of potential government support incorporated within their ratings in accordance with Moody's rating methodology for government related issuers.

The above actions follow Moody's earlier rating action to place on review for possible downgrade the A1/Prime-1 ratings of the Government of the Republic of Portugal ("Portugal"). The main triggers for the review for downgrade include: (1) Uncertainties about Portugal's longer-term economic vitality, which will be exacerbated by the impact of fiscal austerity; (2) concerns about Portugal's ability to access the capital markets at a sustainable price; and (3) concerns about the possible impact on the government's debt metrics of further support for the banking sector, which may be needed for the banks to regain access to the private capital markets. Moody's believes that these concerns warrant placing Portugal's ratings on review for downgrade and says that the rating could be adjusted downwards by a notch or two.

ANA's A2 rating comprises a view of the fundamental credit quality of ANA represented by a Baseline Credit Assessment ("BCA") of 7 (equivalent to A3), and a 1-rating notch uplift for the likelihood of extraordinary support being provided by Portugal in the event that this were ever to be required to avoid a default, as assessed in accordance with Moody's rating methodology for Government Related Issuers. While rating uplift from ANA's BCA is modest, a downgrade in the rating of Portugal to A3 would question whether it was still appropriate to provide a 1 rating notch uplift to ANA's BCA. Consequently, the review for downgrade will be concluded following the conclusion of the review for downgrade of the Portugal rating. ANA is considered well positioned in its A3 equivalent BCA. ANA has continued to perform well during a difficult European economic environment, and with passenger growth of 8.1% in the 10 months ending October 2010, following only modest declines in 2009, is one of the best performing major airport companies in Europe. This robust performance evidences ANA's diversified exposure to a number of economies and highlights its somewhat moderate reliance on the domestic Portuguese economy. ANA's BCA is supported by (1) ANA's monopoly of the Portuguese airport system and its robust competitive dynamics, (2) its rate charging mechanism which is subject to a new framework of economic regulation, (3) a moderate capital expenditure programme across the present airports network, and (4) moderate debt leverage, which would suggest that it is capable of sustaining a BCA at least as high as that of Portugal, should the rating of Portugal fall to A3.

CP is the main railway operator in Portugal, controlling 90% of the passenger market, is 100% owned by the Portuguese Government though the Ministry of Finance, and in FY2009 reported revenues of EUR312 million. In accordance with Moody's rating methodology for Government Related Issuers, CP's A3 rating reflects the following combination of inputs: (1) A BCA of 17 (Caa1 equivalent), (2) the A1 (on review for downgrade) rating of Portugal, (3) Very High Dependence, and (4) Very High Support. CP's A3 rating is two notches below that of its 100% owner, Portugal. Despite CP's weak standalone financial profile, the A3 rating reflects its close links to the government and Moody's expectation that the Portugal would step in with timely extraordinary financial support if required, despite the lack of an explicit guarantee. As a result of that, a review of the rating of Portugal translates into a review of the rating of CP. The rating agency expects that CP's rating will move in line with Portugal's rating, therefore the review will not be concluded before Moody's review of Portugal's ratings is complete.

EDP is the country's largest vertically integrated utility. Its current A3 rating benefits from a one notch uplift from its current standalone credit profile for government support, as expressed by its BCA of 8 (equivalent to a Baa1), in light of its 25.75% direct and indirect government ownership. The review will consider whether this one-notch uplift is still warranted in the context of (1) a potential downgrade of Portugal, (2) the strength of potential extraordinary support in the light of pressures on the government and the possible risk of further privatisation. It will also consider the company's stand-alone strength and any potential impact on EDP's business and financial risk were the sovereign to be downgraded. Moody's points out, however, that EDP is a broadly-diversified company with a significant proportion of regulated businesses under mainly well-established regulatory regimes; in addition to Portugal, it has operations in Spain, the US and Brazil. As at 30 September 2010, EDP had secured liquidity into 2012.

Although Parpública does not enjoy explicit guarantees from Portugal, its rating is in line with the rating of Portugal. The rating is based on our assumption that this entity will remain a key instrument for the Portuguese government's public sector management policy. In addition, Parpública is regarded by law as equal to the state through the parent-subsidiary relationship defined in Articles 501 to 503 of the Portuguese Commercial Companies Code (Código das Sociedades Comerciais). This stipulates that, in the event of default, the parent is ultimately responsible for the debt of its subsidiaries as long as they are 100% owned by the parent. Parpública is a Portuguese fully state-owned entity that acts as a holding company responsible for the management of equity stakes and real estate assets held by the Portuguese state in domestic companies of public or strategic interest. As a holding company incorporated in the form of a joint stock company, Parpública is subject to the applicable commercial law governing holding companies, including Decree-Law 495/88, as well as the Portuguese Companies Code. The legislative framework also includes the Legal Regime of State-Owned Companies and the State's Entrepreneurial Sector (Decree-Law 300/07), and the Portuguese Civil Code Article 501, which refers to private management by the state. Parpública's main role is the management of equity stakes held by the Portuguese state in Portuguese companies of public or strategic interest, specifically in terms of the restructuring of the corresponding sector. Parpública's direct main equity holdings portfolio has a book value of some EUR7bn. The company's largest holdings are: (1) EDP, (2) ANA, (3) GALP Energia (utility company); (4) REN, and (5) Águas de Portugal (AdP) (water and waste management company).

REFER's rating is at the same level as its owner Portugal. Moody's would expect REFER's rating to remain close to that of Portugal and to move in line with the Portugal rating, therefore the review will not be concluded before Moody's review of Portugal's ratings is complete. In accordance with Moody's rating methodology for Government Related Issuers, REFER's A1 rating reflects the following combination of inputs: (1) A BCA of 17 (Caa1 equivalent), (2) the A1 (on review for downgrade) rating of Portugal, (3) Very High Dependence, and (4) Very High Support. The BCA, which expresses a view of the fundamental credit quality of REFER, has been lowered from 15 to 17. This reflects Moody's view that REFER, on a standalone basis, would be increasingly challenged to cover its financing requirements given the constraints in the debt markets and increased debt costs in Portugal. REFER has a very weak financial profile and a debt burden which is substantially more than can be supported by generated cash flow. REFER has significant funding requirements over the next 12 months to meet interest expense, its capital expenditure programme, and debt refinance requirements. In addition REFER has a poor liquidity position given its a large financing requirements relative to available committed liquidity support. A material part of this liquidity support comes in the form of a EUR500m committed bank loan facility which is available for drawing until August 2011. Consequently, REFER is increasingly exposed to debt market conditions.

REN is the exclusive long-term concessionaire of Portugal's mainland high-voltage electricity transmission grid and the country's high-pressure natural gas transportation network. REN's A3 rating benefits from a one-notch uplift for potential government support from its stand-alone credit profile - as expressed by REN's 8 (Baa1-equivalent) BCA - in light of the 51% (direct and indirect) ownership by the Portuguese state and the company's strategic importance associated with the control of key infrastructures. The rating review will focus on whether this one-notch uplift is still warranted.

More generally, the rating reviews of the above issuers will also focus on their individual liquidity profiles and consequent exposure to Portuguese debt market conditions, and the continued appropriateness of the level of potential extraordinary government support embedded within their ratings. A result of the rating review there may be a widening in the difference between the rating of Portugal and one or more issuers subject to this rating review.

For additional information on rating factors, please refer to the individual issuer credit opinions, available on www.moodys.com.

Please see the ratings tab on the issuer / entity page on Moodys.com for the last rating action and the rating history of each issuer.

The principal methodology used in rating the above issuers in conjunction with this rating action is Moody's "Government Related Issuers: Rating Methodology Update", published in July 2010. Other methodologies and factors that may have been considered in the process of rating these issuers can also be found on Moody's website.

London
Paloma San Valentin
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service Ltd.
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London
Monica Merli
MD - Infrastructure Finance
Infrastructure Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

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Moody's places ratings of Portuguese government related issuers on review for downgrade
No Related Data.
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