Fitch Rts MetroGAS' $130MM Debt Issuance `BB-'; Rtg Watch Neg.

Business Editors

CHICAGO--(BUSINESS WIRE)--May 9, 2001

Fitch has assigned a foreign currency rating of `BB-', Rating Watch Negative to the $130 million notes issued by MetroGAS under its $600 million medium-term note program.

The series C notes will accrue at an initial interest rate of LIBOR plus 262.5 bps, increasing by 1/8% every six months, maturing May 15, 2004. Proceeds will be used to refinance the $100 million bond issued in May 1996 and short-term bank debt.

Fitch maintains an international senior unsecured foreign currency rating of MetroGAS at `BB-' Rating Watch Negative and an international senior unsecured local currency rating of `BBB-' Rating Watch Negative. The ratings of MetroGAS were adjusted recently to reflect changes in the Argentine environment and the refinancing, economic and political risks facing the company. While MetroGAS has performed well during the past two years, debt refinancing risks, as well as potential regulatory interference, are more appropriately reflected in the current ratings. The ratings of MetroGAS, as well as those of many other market participants, remain on Rating Watch Negative.

MetroGAS' local currency rating is supported by its low-risk business profile, solid capital structure with low financial leverage and management's ongoing efforts to contain costs. MetroGAS benefits from predictable earnings and cash flow stream, which derive from its remaining 28-year exclusive license to distribute gas within its defined territory. The company serves approximately 1.9 million customers, 95% of which are residential and account for almost 50% of total revenues, providing additional stability to MetroGAS cash flow given the low elasticity of their demand during economic slowdowns. The remaining 50% of the company's revenues derive from industrial clients, comprised mainly by natural gas-fired power plants. The rating also reflects the company's reliable long-term gas supply contracts and its ability to satisfy peak day requirements.

From a regulatory standpoint, the recently heightened political risk increases the risk that regulated utilities, including MetroGAS, could potentially receive lower-than-expected tariff adjustments as regulators may be pressured to hold down prices during the next reset period. Interference in expected tariff adjustments could result in possible deterioration in free cash flow and, ultimately, financial liquidity and credit quality of these companies.

MetroGAS' financial performance and credit measures improved during 2000, primarily as a result of increased sales to residential customers and increased gas deliveries to power plants. This, combined with sustained cost reductions and a more efficient utilization of firm gas transportation capacity, helped increase the EBITDA margin and the EBITDA interest coverage to 21% and 4 times (x), respectively, as of December 2000. MetroGAS' capitalization remained stable at 36%. Credit protection measures are expected to moderately improve over the coming years based on the beginning of operation of the Buchanan pipeline combined with sustained reduction in costs. EBITDA-to-interest is expected to reach approximately 5x by 2003.

MetroGAS S.A. is the largest of eight Argentine natural gas distribution companies formed from the 1992 privatization of Gas del Estado. The company has an exclusive license to serve the Federal Capital district, as well as 11 municipalities located in the southern and eastern sections of greater metropolitan Buenos Aires. MetroGAS is 70%-owned by Gas Argentino S.A. (GASA) and 10%-owned by employees, with the remaining 20% traded on the Buenos Aires and New York stock exchanges. GASA is a consortium comprised of British Gas PLC (54.7%) and Repsol-YPF (45.3%). British Gas also serves as technical operator of MetroGAS.