Capital Coast Health Ltd. Rated 'A'.

MELBOURNE, Australia--(BUSINESS WIRE)--Standard & Poor's CreditWire 10/14/98--Standard & Poor's today assigned its single-'A' long-term corporate credit rating to Capital Coast Health Ltd. The rating outlook is stable.

The rating on Capital Coast Health (CCH) reflects the very strong level of government support for all health and hospital services in New Zealand, and the virtual monopoly position of CCH in a large service area. Offsetting these strong positive factors is the poor ongoing financial performance of CCH. CCH is fully owned by the New Zealand government, with the Ministers of Health and Finance as its shareholders.

Although not having a formal government guarantee, Standard & Poor's believes there is a very strong degree of systemic government support for health and hospital services, reflected by the issuing of shareholders' letters of comfort and letters of undertaking, a history of shareholder equity injections, the refinancing option from the government's Residual Health Management Unit, and an extensive and rigorous shareholder monitoring regime. Despite the poor financial performance of most health and hospital services since their inception in 1993, no health and hospital service has defaulted on its debt.

CCH has a strong market position in that it has a large service capacity, accounting for more than 7% of total New Zealand health and hospital services case mix adjusted discharges in fiscal 1997. CCH has a virtual monopoly position over its services, particularly tertiary services where it is the only provider in the region covering the south of the North Island and the north of the South Island.

CCH receives 90% of its funding through annual contracts with the government health funding body. It is now apparent that there has been systemic under pricing and under purchasing in the funding mechanism, and reforms now underway are designed to remedy this. CCH's poor historical financial performance, with consistent operating deficits, is partly due to this under funding. The under funding from the purchasing body has required top-up funding from the government by means of equity injections. These have totaled NZ$105 million over the fiscal 1995 to fiscal 1998 period. CCH has never had an equity injection request rejected.

OUTLOOK: Stable

Due to the politically sensitive nature of hospital care in New Zealand, Standard & Poor's believes that the present and any future New Zealand government would not threaten the continuity of services from the hospital sector in general, and CCH in particular, as CCH is the monopoly supplier of tertiary services in the region, Standard & Poor's said. ---CreditWire