ACTEW Corp. Placed on S&PWatch.

MELBOURNE, Australia--(BUSINESS WIRE)--Standard & Poor's CreditWire 10/12/98--Standard & Poor's today placed its double-'A'-plus long-term local currency and double-'A' long-term foreign currency corporate credit ratings, and 'A-1'-plus short-term rating, of ACTEW Corp. Ltd. (ACTEW) on CreditWatch with negative implications. The CreditWatch action follows the decision by the government of the Australian Capital Territory (ACT) to seek approval from the Legislative Assembly for the sale of ACTEW's electricity business, and the combined sale and franchise of ACTEW's water and sewerage businesses. Based on other privatization's in the sector, Standard & Poor's is of the opinion that the privatization of ACTEW is likely to weaken its underlying financial profile. The government also intends to table changes to the regulation of electricity, water, and wastewater in response to a number of deficiencies identified in a recent report undertaken by ABN AMRO/DGJ Projects.

ACTEW's corporate credit rating reflects its strong monopoly and largely secure customer base within the ACT, its ownership by and support from the ACT government (local currency triple-'A'/Stable/'A-1'-plus), and its solid financial profile. Current uncertainty over long-term pricing regulation poses a risk to ACTEW's future earnings.

ACTEW is the sole provider of electricity, water, and wastewater services to more than 330,000 people, predominantly within the ACT. While the national electricity market will promote competition, ACTEW will continue to receive substantial earnings from its network operations. ACTEW's electricity operations contribute about 70% of total sales, and, of this contribution, 85% is derived from its network charges. ACTEW's customer base largely consists of the domestic market, which enhances ACTEW's profit stability. The residential customer segment consumes about 45% of the total electricity supplied by ACTEW, and generates about 39% of revenue. The dominant industry in the ACT is the national government sector, which also is considered stable.

As a wholly owned entity of the government of the ACT, ACTEW benefits from borrowing through the government's finance department. Advantages include access to capital markets, same-day funding, and the government's guarantee on these lines of borrowing.

ACTEW's current financial profile is conservative, with stable profitability, a solid interest coverage, and a low-gearing level. In the absence of privatization, interest cover is forecast to range 9 times (x)-13x until fiscal 2002, and its extremely low-gearing level of 8% in fiscal 1998 is expected to rise no higher than 15.5% up to fiscal 2002, as net debt increases. The uncertainty of future pricing regulation is a significant risk to ACTEW's revenue stream. Currently, the ACT Water and Energy Commission determines ACTEW's electricity, water, and wastewater charges. However, the pricing determination is only set for one year, and the pricing regime thereafter is unknown, Standard & Poor's said.---CreditWire