TEXT-Moody's sees pressure on Aust/NZ power sector rtgs

(The following statement was released by the rating agency)

May 9 - Moody's Investors Service believes the stable
outlook on the Australian and New Zealand power sector is
trending towards negative, as intense mergers and acquisitions
(M&A) activities continue to pressure ratings in the sector. Such
activities are offsetting the sector's solid operating
fundamentals that are supportive of a broad investment-grade
credit profile.

"The willingness of parties to pursue highly leveraged
funding structures in these transactions means an actual
deterioration in sector credit quality is likely," Moody's says
in a new report.

The report - entitled Stable Credit Fundamentals Pressured
by Intense M&A Activities - looks at the outlook for Australia
and New Zealand's electricity and gas industry. The report is
authored by Clement Chong, a Moody's VP/Senior Analyst.
Besides M&As, it examines a broad range of topics, including
sector leverage, regulatory environments, and energy retail.

Moody's rates 27 power utilities - involved in either
electricity or gas or both - in Australia and New Zealand.
"M&As activities have continued unabated in recent times, as
evidenced by the sales of Alinta and Origin Energy's
infrastructure assets as well as the privatization of Queensland
electricity and gas retailers," says Chong.

"Such debt-funded transactions add to already highly
leveraged levels and will pressure the sector's credit profile,"
says Chong.

Reflecting this trend, Moody's is now reviewing the ratings
of three utility companies: the Alinta group of companies, SP
AusNet group and Babcock & Brown Infrastructure.

"At present, 9 out of the 27 ratings are on review for
possible downgrade, and 1 on review with direction uncertain,"
says Chong, adding, "these reviews were all prompted by M&A
activities".

"The sector's M&A activities have coincided with the
emergence of listed infrastructure funds. However, non-funds
players - such as Alinta Ltd, AGL Energy, Australian Pipeline
Group and Origin Energy - had also signaled their growth
intentions many times," says Chong.

The investment appetites of these players appear to have
expanded to include offshore utility assets, given the dwindling
number available for sale domestically at reasonable prices.
The report can be found at www.moodys.com.