S&P Asgns BB- Rtg to Mosenergo Finance.

LONDON--(BUSINESS WIRE)--Standard & Poor's CreditWire 10/8/97-- Standard & Poor's today has assigned its double-'B'-minus long-term foreign currency rating to Mosenergo Finance B.V.'s Eurobond notes. The issue is guaranteed by AO Mosenergo. On June 16, 1997 Standard & Poor's assigned a double-'B'-minus corporate credit rating to AO Mosenergo. The rating reflects Mosenergo's stable operations as the monopoly distributor of electricity and district heating in the City of Moscow and the Moscow Region, its sound generation business and strong financial profile. The rating also incorporates the company's integration in the rather weak federal electricity industry, the uncertainties arising from a somewhat unstructured regulatory framework and the considerable financial pressures arising from collection problems.

While Mosenergo's rating is constrained by the foreign currency rating of the Russian Federation, it is also affected by general Russian operating risks and adverse business conditions in the electricity wholesale market.

Mosenergo is the largest of 72 vertically integrated regional utilities operating in the Russian Federation. The company is 49% owned by Unified Energy Systems of Russia (RAO UES), which in turn is 53% owned by the State. RAO UES owns a similar stake in most of the regional utilities and acts as the central cog of the federal unified electricity system. Mosenergo is one of the strongest regional utilities in Russia in terms of both operational performance and financial profile. The company's service area is one of the most diversified in the country and the revenue base is expected to remain robust, despite the decline in industrial electricity consumption. Municipal and regional regulators are allowing tariffs to be gradually rebalanced to eliminate the traditional subsidy from industrial to residential consumers. The regulators also plan to update tariffs to cover all costs plus a return on capital, though the legislative framework is new and the implementation is likely to be a gradual process. The district heating business accounts for about 30% of Mosenergo's total revenues and cash-flow. No competition is expected either in electricity or heat distribution over the medium term. Generation is largely gas-fired and installed capacity currently exceeds demand in the company's service area (with a reserve margin of 22% in 1996) and Mosenergo is an important seller in the Russian's wholesale market.

Mosenergo is virtually debt-free and the company's profitability and cash-flow margins are strong. Some debt will be taken in coming years, though leverage is expected to remain modest for this rating category. Like many other companies in the Russian Federation, Mosenergo is burdened by collection difficulties. The problem, however, is largely due to late payment from federal and municipal entities rather than to non payment from private institutions. Mosenergo also has some room to net these bills with accounts payable to municipal entities.

OUTLOOK: Stable.

The stability provided by its monopoly position, together with the ongoing increases in residential tariffs and the expected stabilization of the service area's economy should help Mosenergo to maintain a stable revenue base and a solid financial position, Standard & Poor's said. - CreditWire.

CONTACT: Carin Frost, Stockholm (46) 8-440-5929

Marc Watton, London (44) 171-826-3641

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