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7 October 2003 - Standard & Poor's Ratings Services said today it placed its 'A/A-1' corporate credit rating on Denmark-based electric utility Elsam A/S on CreditWatch with negative implications in response to Elsam's announcement that it has reached an agreement to acquire a 78.8 per cent interest in Denmark-based electricity distributor NESA A/S for a cash consideration of Danish krone (Dkr) 8.27 billion ($1.31bn).
Elsam also intends to acquire the remaining shares in NESA through a public offering, at a cost of about Dkr2.2 billion. At June 30, 2003, Elsam had net debt of Dkr17 million.
"The CreditWatch placement reflects the negative financial effect that the proposed acquisition could have on Elsam, including significantly weakened debt protection measures," said Standard & Poor's credit analyst Magnus Pettersson. "This is partly mitigated, however, by the strategic and business benefits of gaining access to NESA's downstream electricity supply and monopoly distribution operations, which would reduce Elsam's market exposure as a pure generation company."
The CreditWatch status reflects the acquisition of all NESA shares by Elsam. Elsam has reached an agreement to acquire a controlling interest of 78.8% in NESA by buying the shareholdings of municipal owners Gjentofte Kommune and K&oauml;penhamns Amt. If it receives approval from the Danish competition authority and Elsam's shareholders, the acquisition would result in the full consolidation of NESA by Elsam.
Standard & Poor's expects to resolve the CreditWatch status before year-end 2003. Key factors determining the outcome include the extent of any further purchases by Elsam of equity stakes in NESA, the business and financial prospects of the combined group, as well as further growth objectives. In particular, Standard & Poor's will carry out an in depth assessment of how an improved business profile would offset Elsam's weakening financial profile.
"If the transaction is granted unconditional approval, and if Standard & Poor's continues to believe that Elsam's business profile would benefit from the acquisition, any downgrade would be unlikely to exceed two notches," added Mr. Pettersson.
The acquisition will initially be financed by a new bank loan and by cash held by Elsam. Elsam's total debt could increase to about Dkr10.5 billion from today's Dkr2.1 billion if the acquisition goes ahead
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