LONDON, June 16 /PRNewswire/ -- Standard & Poor's today has assigned its double-'B'-minus foreign currency issuer credit rating to AO Mosenergo. The credit rating is constrained by the sovereign ceiling of the Russian Federation. The outlook is stable. The ratings reflect Mosenergo's stable operations as the monopoly distributor of electricity and district heating in the City of Moscow and the Moscow Region, its sound generation business and strong financial profile. The rating also incorporates the company's integration in the rather weak federal electricity industry, the uncertainties arising from a somewhat unstructured regulatory framework and the considerable financial pressures arising from collection problems. While Mosenergo's rating is constrained by the foreign currency sovereign rating of Russia, it is also affected by general Russian operating risks and adverse business conditions in the electricity wholesale market. Mosenergo is the largest of the 72 vertically integrated regional utilities operating in the Russian Federation. The company is 49% owned by Unified Energy Systems of Russia (RAO UES), which in turn is 53% owned by the State. RAO UES owns a similar stake in most of the regional utilities and acts as the central cog of the federal unified electricity system, managing the high voltage grid and the wholesale market and accounting for more than half of country's generation capacity. The country's nuclear assets are directly owned and managed by the State. Mosenergo is one of the strongest regional utilities in Russia in terms of both operational performance and financial profile. The company's service area is one of the most diversified in the country and the revenue base is expected to remain robust, despite the steady decline in industrial electricity consumption. The municipal and regional regulators are allowing tariffs to be gradually rebalanced to eliminate the traditional subsidy from industrial to residential consumers. The regulators plan to update tariffs to cover all cost plus a return on capital, though the legislative framework is new and the implementation is likely to be a gradual process. The district heating business accounts for about 30% of Mosenergo's total revenues and cash-flow. No competition is expected either in electricity or heat distribution over the medium term. Generation is largely gas-fired and the average plant age is a reasonable 14 years. All gas is supplied by Gazprom through enterprises owned by the Moscow City and the Moscow Region at below market prices. Installed capacity currently exceeds demand in the company's service area (with a reserve margin of 22% in 1996) and Mosenergo is an important seller in the Russian's wholesale market. Mosenergo is virtually debt-free and the company's profitability and cash-flow margins are strong, with funds from operations to sales ratio of about 30% in 1996. Some debt will be taken in coming years, though leverage is expected to remain modest for this rating category. Like many other companies in the Russian Federation, Mosenergo is burdened by collection problems. The increase in accounts during 1996 amounts to 31% of the year's revenues. The problem, however, is largely due to late payment from federal and municipal entities rather than to non payment from private institutions. Mosenergo also has some room to net these bills with accounts payable to municipal entities. Being one of the strongest regional utilities in the system, Mosenergo may experience some pressures to expand capacity beyond its needs and to continue supplying electricity to the unprofitable wholesale market. OUTLOOK: Stable. The stability provided by its monopoly position, together with the ongoing increases in residential tariffs and the expected stabilization of the service area's economy should help Mosenergo to maintain a stable revenue base and a solid financial position, Standard & Poor's said. -- CreditWire SOURCE Standard & Poor's CreditWire -0- 06/16/97 /CONTACT: Carin Frost, Stockholm, 46-8-440-5929, or Juan Jose Gracia Seijo, London, 44-171-826-3642, both of Standard & Poor's/ CO: AO Mosenergo ST: New York IN: FIN OIL UTI SU: RTG -0- (PRN) Jun/16/97 11:54 EOS (PRN) Jun/16/97 11:54 86 â -0- (
MOSENERGO ASSIGNED 'BB-' FOREIGN CURRENCY RATING BY S&P; OUTLOOK
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