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Electric utilities

Standard & Poor's Places ACTEW Corp. Ltd. Ratings on CreditWatch with Negative Implications

Strategic Insights

— 2 min read

Standard & Poor's has placed the credit ratings of ACTEW Corp. Ltd. on CreditWatch with negative implications following the Australian Capital Territory government's decision to seek approval for the sale of its electricity business and the combined sale and franchise of its water and sewerage businesses. The government's intention to privatize ACTEW's businesses is likely to weaken its underlying financial profile, according to Standard & Poor's. The credit ratings reflect ACTEW's strong monopoly and secure customer base within the ACT, as well as its solid financial profile and ownership by the ACT government.

Key Takeaways:

  • Standard & Poor's has placed ACTEW Corp. Ltd.'s credit ratings on CreditWatch with negative implications, citing the potential weakening of its financial profile due to the privatization of its businesses.
  • The Australian Capital Territory government has decided to seek approval for the sale of ACTEW's electricity business and the combined sale and franchise of its water and sewerage businesses.
  • ACTEW's credit ratings reflect its strong monopoly and secure customer base within the ACT, as well as its solid financial profile and ownership by the ACT government.
  • Current uncertainty over long-term pricing regulation poses a risk to ACTEW's future earnings, as the pricing determination is only set for one year, and the pricing regime thereafter is unknown.
  • ACTEW's customer base largely consists of the domestic market, which enhances ACTEW's profit stability, with the residential customer segment consuming about 45% of the total electricity supplied by ACTEW and generating about 39% of revenue.
  • ACTEW benefits from borrowing through the government's finance department, with advantages including access to capital markets, same-day funding, and the government's guarantee on these lines of borrowing.
  • ACTEW's current financial profile is conservative, with stable profitability, a solid interest coverage, and a low-gearing level, with interest cover forecast to range 9-13 times until fiscal 2002, and a gearing level of 8% in fiscal 1998 expected to rise no higher than 15.5% up to fiscal 2002.

Statistics:

  • 70% of ACTEW's total sales comes from its electricity operations.
  • 85% of ACTEW's electricity contribution is derived from its network charges.
  • 45% of the total electricity supplied by ACTEW is consumed by the residential customer segment.
  • 39% of revenue is generated by the residential customer segment.
  • ACTEW's gearing level was 8% in fiscal 1998, and is expected to rise no higher than 15.5% up to fiscal 2002.
  • Interest cover is forecast to range 9-13 times until fiscal 2002.

Sources:

  • Standard & Poor's CreditWire, 10/12/98.

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