S&P Rts Sydney Water Corp. AA+/A-1+.

MELBOURNE, Australia--(BUSINESS WIRE)--Standard & Poor's CreditWire 6/3/98--Standard & Poor's today assigned its double-'A'-plus long-term and 'A-1'-plus short-term corporate credit rating to Sydney Water Corp. Ltd. and its unguaranteed obligations.

This rating does not apply to Sydney Water's guaranteed obligations, specifically the outstanding bonds issued by its predecessor, Sydney Water Board. These Sydney Water Board bonds are guaranteed by the State of New South Wales ('AAA/Stable/A-1+') and remain rated at triple-'A'.

The rating reflects Sydney Water's monopoly position within the Sydney metropolitan region, its diverse customer base, a strong financial profile, and ownership by the State of New South Wales. These positive factors are offset to some extent by increasing pressure from economic and environmental regulators.

Sydney Water provides essential services of water and wastewater to a diverse customer base. This natural monopoly provides Sydney Water with a strong andstable business position. The customer base served by Sydney Water constitutes a high proportion of residential customers, providing about 66% of total water revenue. Residential customers contribute to revenue stability and predictability as they are not subject to swings in the business cycle.

Sydney Water has a strong financial profile, with substantial liquid financial assets. As a result of an unusually dry summer, Sydney Water will achieve above-average profitability in fiscal 1998. Profits and funds flow from operations (FFO) are expected to decline in fiscal 1999 before increasing after fiscal 2000. FFO-to-net interest is expected to remain relatively constant at between 2.0 times (x) and 2.5x over the medium term. Net debt levels are anticipated to increase in the near term as liquid assets are applied to pay expected high levels of dividends. Net debt payback (net debt-to-FFO) is forecast to reach over 7.5 years during the next five years, from six years in fiscal 1997. Gearing, as measured by debt-to-total capital, for fiscal 1997 was 16%, and is expected to remain at a similar level over the medium term.

Sydney Water benefits significantly from government ownership, and from the government's provision of almost all the company's financing requirements. As well as holding all equity, the government borrows from capital markets through the New South Wales Treasury Corp. on Sydney Water's behalf.

Higher environment standards could place some pressure on Sydney Water's financial performance. Sydney Water is likely to be subject to increasing pressure to meet higher environmental standards. While the pricing regulator-the Independent Pricing and Regulatory Tribunal (IPART)-has acknowledged the likelihood of price increases to combat such pressures, there is no guarantee of cost recovery. In addition, IPART will continue to seek efficiency gains from Sydney Water.

OUTLOOK: Stable

The outlook reflects the expected stable earnings from Sydney Water Corp.'s monopoly business, Standard & Poor's said. -- CreditWire

    CONTACT: Anthony Flintoff, Melbourne (61) 3-9250-4562
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