Parent support rewards Natural Gas

By Felicity Anderson, Nzoom.com Business News Editor

Tuesday 16th October 2001

Standard & Poor's has removed Natural Gas Corporation (NGC) from CreditWatch with negative implications, satisfied with the support given by its parent company Australian Gas Light (AGL).

NGC has had affirmed its "A-" long-term and "A-2" short-term ratings, along with that of its finance company and wholly owned subsidiary On Energy.

S&P's says the outlook on the trio is stable.

The companies ratings were placed on CreditWatch on June 26 as NGC continued to suffer electricity trading losses.

S&P's says NGC's exit from the increasingly competitive electricity retail market in August has reduced its operating risk profile.

"The companys lower risk operating profile-centred predominantly on gas wholesaling and infrastructure assets, and electricity generation-will support its higher financial risk profile, a legacy of the electricity retailing losses incurred in the winter of 2001," S&P's says.

It is expecting NGC to take 12-18 months to recover from those losses.

Laurie Conheady, associate, Corporate & Infrastructure Finance Ratings says NGC's 2002 financial result will be affected, with an estimated loss of $40 million after tax incurred before the sale of the company"s remaining North Island electricity customer base in August.

The company reported $73 million in electricity trading losses for the year to June 30.

"Funds from operations interest cover, which dipped to 2.7 times (x) in fiscal 2001 from 3.4x in fiscal 2000, is not expected to show any substantial improvement in fiscal 2002, before rising to a more sustainable level of above 3.5x in fiscal 2003," Conheady says.

S&P's warns failure to meet these financial parameters will put pressure on the current rating.

NGC sent a independent appraisal report from PricewaterhouseCoopers to its shareholders along with notice of its annual meeting this week.

A spokesman says the appraisal report covers the terms of the loan to NGC by AGL, which are part of a resolution to be voted on at the meeting. AGL extended NGC a loan of $135 million.

NGC gained a waiver from the New Zealand Stock Exchange covering the agreement seeing as it was between related parties, on condition that if it was still in place at the time of the annual meeting, it had to be voted on by shareholders.

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