Fitch Downgrades CGE's Local Currency and National Rtgs; Affirms Foreign Currency Rtg.

Business Editors

CHICAGO--(BUSINESS WIRE)--July 1, 2003

Fitch Ratings has downgraded the international local currency rating of Compania General de Electricidad (CGE) to 'A-' from 'A' and removed the Rating Watch Negative status. The foreign currency rating of 'A-' has been affirmed. The downgrade reflects the credit impact of acquisition Chilean electricity distributor, Rio Maipo, from Enersis S.A. and reflecting the resulting increase in consolidated debt. The Chilean national scale rating of 'AA+(chl)' has also been downgraded to 'AA(chl)'.

The rating action reflects the addition of approximately US$185 million of new debt (US$170 million to finance the purchase plus approximately US$15 million net at Rio Maipo) related to the acquisition. While the inclusion of Rio Maipo should provide CGE with increased low risk cash flow, Fitch expects a slightly negative initial impact on consolidated credit measures and a lag in previously expected credit improvement. The new debt is expected to increase leverage and result in minor erosion in interest coverages. The financial consolidation of Metrogas with Gasco, and thus with CGE, since 2000 has been pressuring CGE's consolidated credit quality reflecting the higher debt levels at Metrogas resulting from the buildout of the distribution pipelines. Recently reported consolidated credit protection measures are considered weak for the current local currency rating category, but were expected to improve over the following 12 to 24 months. The additional debt should delay somewhat this anticipated improvement.

Positively, the acquisition of Rio Maipo will expand the company's core business of Chilean electricity distribution and allow the company to build on the inherent strengths of its electricity and, to a lesser degree, natural gas distribution businesses. Although the company participates in other minor businesses, operating income (based on percentage ownership of investments) has been derived primarily from the electricity (76%) and gas (20%) sectors. CGE benefits from strong and growing service territories in Chile for both electricity and natural gas, though long term electricity demand growth is projected to be approximately 6% annually.

CGE distributes and transmits electricity to consumers in Chile. Through subsidiaries and affiliates, CGE distributes liquid gas in Chile and natural gas in Chile and Argentina, distributes electricity in Argentina, conducts real estate transactions and produces software. CGE's Chilean electricity companies include CGE, Empresa Electrica Emec S.A. (EMEC), Compania Nacional de Fuerza Electrica S.A. (Conafe), Empresa Electrica de Magallanes S.A. (Edelmag) and CGE Transmision. In Argentina, the company participates in the sector through ESJ (San Juan), Edet (Tucuman), and Ejesa (Jujuy). Through affiliates, the company also has interests in other industries including telecommunications and cement production. In January 2001, PP&L increased its ownership position in CGE to 7.4% through a purchase option the company had with Grupo Claro, giving PP&L a seat on the board of directors.