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
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.
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.
SOURCE Standard & Poor's CreditWire
/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
-0- (PRN) Jun/16/97 11:54
EOS (PRN) Jun/16/97 11:54 86
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